The challenges faced by payments banks have once again come to the fore with a leading business conglomerate winding up its business.

Nearly 17 months after it began operations, Aditya Birla Idea Payments Bank Limited on Saturday announced that it was shutting down operations on account of “unanticipated developments” that made its economic model “unviable”.

In a late evening announcement on Friday, Vodafone Idea Limited in a regulatory filing said, “The board of directors of our associate company — Aditya Birla Idea Payments Bank Limited (ABIPBL) — has, subject to the receipt of the requisite regulatory consents and approvals, approved the voluntary winding up of ABIPBL”.

The AV Birla group said the firm has made complete arrangement of funds to return customer deposits and meet all liabilities.

ABIPBL had begun operations as a joint venture between Aditya Birla Nuvo (which was later merged with Grasim Industries) and Idea Cellular in February 2018.

In August 2015, the RBI had given licences to 11 entities who were interested in setting up these niche banks. The central bank had said that the primary objective of establishing these banks was to harness technology to increase financial inclusion by opening small savings accounts and providing payments or remittance services to migrant labourers, small businesses and low-income households.

However, months later, four players have dropped out. One of the key factors cited by observers behind the difficult business model are the regulatory restrictions imposed on them. While these banks cannot lend, they can accept deposits of up to Rs one lakh in each account which can be only savings or current account deposits.

So, while these banks do not earn any interest income, they have to depend on fee income generated by selling third-party products such as mutual funds and life insurance schemes. Moreover, their core business is entirely volume led, which has also seen the entry of several nimble-footed fintech firms.

“The payments banks business is about managing costs, building partnerships and creating a good network in unbanked areas. For most of the players who have opted out, this has not been their core business,” a senior official from one of the existing payments banks told The Telegraph.