The confirmation of merger talks between two mammoth telecom carriers — Vodafone India and Idea Cellular was definitely surprising for most of us. This merger is expected to lead to the creation of the largest telecom network of the country, which is the plus side of this deal. It might also have its downsides as well.
One of the downsides of the merger deal has already been detailed and it might affect the upcoming payments bank business of Vodafone. It has explained by an official from Reserve Bank Of India (RBI), who says that only one of the payments bank will be allowed to emerge from the combined entity. Even though both the carriers have received in-principle licence to operate their own payments banks but either of the two cannot compete with another licence holder.
Speaking on the same, the RBI official says,
If they want to go for a merger, they can, but only one payments bank licence will remain valid. They will have to approach RBI with a clear proposal on which licence they intend to move ahead if a merger materialises, as announced.
Vodafone, the parent company of subsidiary Vodafone India and Aditya Birla Nuvo, the parent company for Idea Cellular are currently said to be involved in talks for an all-share merger. This would lead to the formation of a new combined group entity, which could extend both of the parties involved an equal stake.
The two companies haven’t decided on the final terms of the deal as well as a common brand name. The network coverage of the combined entity, it will stand roughly at 43 percent — 23 percent of Vodafone and 19 percent of Idea. And Kumar Mangalam Birla is expected to head this combined entity.
Further, another person privy to the development provides this explanation for the surrender:
The major reason for Vodafone to surrender would be its foreign ownership. Vodafone India is a wholly-owned subsidiary of its UK parent and to be able to set up a payments bank, it needs to reduce it to less than 50%, for which they have not announced any domestic partner yet.
As of now, the final decision on the merger has not been taken, but the thinking in Vodafone is to give up on the licence and undertake banking operations under the Aditya Birla Nuvo licence, as they do not have similar problems of foreign shareholding.
Aditya Birla Nuvo was one of the eleven companies to receive RBI licence to operate their own digital payments bank under the Bharat Bill Payment System. This was announced in August 2015 and the entities had been given 18 months to start their banking operations. Till date, Airtel and Paytm are the only ones who’ve already applied for final clearance whereas Cholamandalam, Tech Mahindra and Dilip Shanghvi have already given up their licences.
Aditya Birla Idea Payments Bank, as it has been named, is running on schedule and is expected to launch its operations in the first half of 2017. In this entity, Aditya Birla Nuvo owns 51 percent while Idea holds 49 percent stake. And the organisation restructuring might lead to Aditya Birla’s stake and bank services to move under the Aditya Birla Financial Services banner. As for Vodafone’s payments bank, RBI has not received any formal communication about their current plan. It is waiting on final world from the combined
As for Vodafone’s payments bank, RBI has not received any formal communication about their current plan. It is waiting on the final word from the combined entity, if the merger goes through, on their plans for opening the payments bank.
