RBI to license new category of banks

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New entities with restricted operations allowed

RBI to license new category of banks
To expand financial inclusion in the country, the Reserve Bank of India (RBI) on Thursday released the draft guidelines for licensing of payment banks and small banks. Stating that payment and small banks are restricted banks, the central bank said that it is working on and would soon be coming out with guidelines for continuous authorisation of universal banks, raising hopes of corporate houses and non-banking finance companies (NBFCs) that could not secure a banking licence in April this year.

According to the draft norms, the entities eligible to set up a payment bank include existing non-bank pre-paid instrument issuers (PPIs), NBFCs, corporate business correspondents, mobile telephone companies, supermarket chains, companies, real sector cooperatives, and public sector entities. The entities eligible to set up a small bank include resident individuals with 10 years of experience in finance, companies and societies, NBFCs, micro finance institutions (MFIs) and local area banks (LABs).

“Both payments banks and small banks are 'niche' or 'differentiated' banks; with the common objective of furthering financial inclusion,” said RBI.

While small banks would be allowed to provide a whole suite of basic banking products such as deposits and loans, payment banks would be permitted to provide a limited range of products, such as demand deposits and remittance of funds — but they cannot lend. Payment banks would be required to have a widespread network of access points particularly to remote areas, either through their own branch network, via business correspondents (BCs) or through networks provided by others. The draft norms require payments bank to have at least 25 per cent of access points in rural centres.

The minimum paid-up capital requirement of both payments banks and small banks would be Rs 100 crore, of which the promoters’ initial minimum contribution has to be at least 40 per cent, to be locked in for a period of five years.

Shareholding of the promoters will have to be brought down to 40 per cent within three years, 30 per cent within a period of 10 years, and to 26 per cent within 12 years from the date of commencement of business, said the RBI.

Reacting to the news, Oommen K Mammen, chief financial officer, Muthoot Finance said, “We had applied for a banking licence earlier and are keen to convert into a bank. We have a lending book and are also into foreign inward remittances with 1-2 lakh transactions in a month. Both the structures (payment bank and small bank) fits our business model.

However, we will wait to see the norms for universal banks and then take the final call.”

Rishi Gupta, executive director, FINO PayTech said, “Payments bank will help de-clutter commercial banks from financial inclusion activities and bring in more focused approach in serving the rural masses. We believe this is an interesting phase in the Indian banking industry and look forward to be a part of this eco-system.”

“We will require to further analyse the guidelines and subsequent business models, before taking any call,” said Gupta.

The Reserve Bank last came out with a set of guidelines for licensing f new banks in the private sector in February 2013 and in April granted in-principle full licence to two entities — IDFC and Bandhan — of the 25 players that had applied.

In Union budget 2014-15 presented on July 10, finance minister Arun Jaitley had said, “After making suitable changes to the current framework, a structure will be put in place for continuous authorisation of universal banks in the private sector in the current financial year. RBI will create a framework for licensing small banks and other differentiated banks. Differentiated banks serving niche interests, local area banks, payment banks etc. are contemplated to meet credit and remittance needs of small businesses, unorganized sector, low income households, farmers and migrant workforce.”

According to the draft norms for small banks, the maximum loan size and investment limit exposure to single/group borrowers / issuers would be restricted to 15 per cent of its capital funds. At least 50 per cent of a small bank’s loan portfolio should constitute loans and advances of size upto Rs 25 lakh in order to extend loans primarily to micro enterprises. The area of operations of the small bank will normally be restricted to contiguous districts in a homogenous cluster of states/Union territories so that the bank has the “local feel” and culture. However, if considered necessary, the bank will be allowed to expand its area of operations beyond contiguous districts in one or more states with reasonable geographical proximity.

Payments banks will initially be restricted to holding a maximum balance of Rs 1 lakh per customer, which would be raised later based on their performance. The payments / remittance services would include acceptance of funds at one end through various channels, including branches and BCs and payments of cash at the other end, through branches, BCs, and ATMs. Cash-out would also be permitted at point-of-sale terminal locations.

Both small bank and payments bank shall be required to maintain a minimum capital adequacy ratio of 15 per cent of its risk weighted assets (RWA) on a continuous basis.

The draft norms bar payment banks from setting up subsidiaries to undertake on-banking financial services activities or such activities of their promoters. “Payment bank cannot undertake lending. Apart from amounts maintained as cash reserve ratio (CRR) with RBI, minimum cash in hand and balances with a scheduled commercial bank, it will be required to invest all its monies in government securities/treasury bills with maturity up to one year,” said RBI.

The central bank has invited comments on the draft guidelines up to August 28.


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