Paytm will not join interest-rate war after opening payments bank

On 9 June, online wallet service provider Paytm ruled out joining the rate war in the savings account interest rate space after launching its payments bank - scheduled to begin in August.

"Obviously, we do not want our customers to lose money if they are keeping their money with us, but at the same time we don't want to fight a war on interest rates," Shinjini Kumar, chief executive-designate of the Paytm's payments bank venture, said.

Shinjini Kumar, who recently joined the bank from consultancy major PwC, explained that it is "counter intuitive" for a payments bank to offer higher interest rates as it has restrictions on how it uses the deposits.

"It is very counter-intuitive for a payments bank to offer higher rate of interest on savings because they will just park the money. I am interested in the money that does things, I am not interested in money that sits. Money that sits is not good for me because I am not earning anything much on the float," she said.

It is interesting to note that payment banks are required to park 75% of their deposits in the safer but low yielding fixed income instruments. They are also not allowed to use their deposits for lending.

The comments come amid a race within the commercial banks to woo customers with higher interest rates on savings accounts, through which they target to forge sticky relationships that also helps cross-sell other financial products.

Foreign lender DBS Bank recently launched a product offering 7.1% without any ceiling on the quantum, while private sector lender Kotak Mahindra Bank said it will continue with the 6% interest rate. Yes Bank also offers similar interest rates on deposits of over Rs 1 lakh.

Kumar said the aim of the forthcoming payments bank is to solve the "friction" in banking through newer, innovative strategies and get more people into the banking fold.

--With agency inputs