Evaluating the Financial Performance of Payment Banks in India Since COVID-19 Pandemic: Using the GMM and Dynamic OLS Approach

During the COVID-19 lockdown, Indian migrant population face heightened vulnerability. Payment banks (PBs) were established to boost financial inclusion, catering to migrant labour, small businesses and low-income households with savings accounts and digital services. The study empirically evaluates the performance of six PBs, namely Airtel Payments Bank, India Post Payments Bank, Fino Payments Bank, National Securities Depository Limited Payments Bank, Jio Payments Bank and Paytm Payments Bank, encompassing annual panel data spanning from 2019 to 2022, and analysing financial metrics such as return on assets (ROA), profit margin, liquidity, banking business, leverage and efficiency to determine their impact on economic activities. Using the generalized method of moments and dynamic ordinary least squares, it is observed that all explanatory variables yielded a positive outcome, emphasizing the importance of PBs for those factors determining the profitability of bank operations. Payment banks have registered negative ROA and high operating expenses, although Airtel, Fino and Paytm Payments Banks exhibit profitable businesses among six. It is recognized that PBs play a crucial role in promoting financial services, promoting digital transactions and assisting India to achieve larger economic development objectives. The study recommended PBs to prioritize technological collaboration, efficient operations, financial literacy and regular monitoring of financial health, and encouraged payment banks to lend to micro-businesses within MSMEs for economic growth.