The Reserve Bank of India
(RBI) had, earlier, granted licenses to open Private Banks to two applicants: IDFC Ltd. &
Bandhan Microfinance. Now, the RBI has issued the guidelines for licensing two
more categories of banks: Small Banks & Payments Banks. The idea for these
two categories was first mooted by the Nachiket Mor Committee on Financial
Inclusion.
Background: In the Union Budget for 2014-2015, Finance
Minister Arun Jaitley announced: “…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, the unorganized sector, low income
households, farmers and the migrant work force.”
RBI received over 113 applications for
setting up small and payments banks till 3rd February 2015, which included
some of India’s biggest companies.
Payments Bank Applications were received from
companies like Bharti Airtel (who tied up with Kotak Mahindra Bank), Reliance (together
with India’s largest bank, State Bank of India), Aditya Birla Group’s Idea
Cellular (teamed up with largest shareholder Aditya
Birla Nuvo), Vakrangee Ltd., Future Group, Vodafone (in conjunction with Yes
Bank), online payments player PayTM, Fino Paytech, Online Recharge Player
Oxigen (alongwith RBL Bank), GI Technology, and insurance player Cholamandalam
Investment & Finance.
Those looking to start Small Banks include
SKS Microfinance, Dewan Housing Finance, Vikram Akula-promoted Vaya Finserv, Jainco
Projects, Microsec Financial Services, Village Financial Services and UAE
Exchange India, amongst others.
These applications will be analyzed and
evaluated by an External Advisory Committee (EAC). The EAC for small banks will
be chaired by Usha Thorat, former deputy governor, RBI. Nachiket Mor, director,
Central Board, RBI, will chair the committee for payments banks.
Small Banks
The aim of small banks is to increase
financial inclusion in the country. These banks will provide complete basic
banking facilities through high technology-low cost operations, such as
deposits, lending, and supply of credit to small farmers, micro and small
industries, the unorganized sector, and low income sections of the population.
Who are eligible
for Small Banks?
Resident individuals, companies, and societies with 10 years
of experience in banking and finance will be eligible as promoters to set up
small banks. Existing non-banking finance companies (NBFCs), microfinance
institutions and local area banks can also opt to convert themselves into a
small bank. The RBI has said that proposals received from large public sector
entities, industrial and business houses (including NBFCs promoted by them)
will not be entertained to set up small banks.
Key Points:
1. The small bank shall be registered as a public limited
company under the Companies Act, 2013.
2. As per the guidelines, the promoters’ initial
minimum contribution will be at least 40 % of the minimum capital, to be locked
in for a period of 5 years.
3. The minimum paid-up capital requirement for small banks is
Rs. 100 crore.
4. Small banks will offer both deposits as well
as loan products.
5. They cannot set up subsidiaries to undertake non-banking
financial services activities.
6. The maximum loan size and investment limit exposure to
single/group borrowers/issuers would be restricted to 15 per cent of total capital
funds.
7. Loans and advances of up to Rs 25 lakhs, primarily to micro
enterprises, should constitute at least 50 per cent of the loan portfolio.
8. For the first three years, 25 per cent of branches should be
in unbanked rural areas.
9. The foreign shareholding in the bank would be as per the
extant FDI policy.
10. For the initial three years, prior approval will be required
for branch expansion.
Payment
Banks
The main objective of payment banks is to
increase financial inclusion in the country via a primary focus on domestic
payments services by providing small savings accounts. These banks will mainly
be used for payments and remittances to and from the migrant labour workforce,
low income households, small businesses and other unorganized sector entities.
Key Points:
1. The minimum paid-up capital requirement for
payments banks is Rs. 100 crore.
2. As per the guidelines, the promoters’ initial
minimum contribution will be at least 40 % of the minimum capital, to be locked
in for a period of 5 years.
3. Payments banks will have to invest in
government securities with a maturity of up to one year.
4. Payments banks will be used only for
transaction and deposits purposes. Unlike small banks, payments banks cannot
lend money.
5. Payments banks can open small savings
accounts and accept deposits of up to Rs.1 lakh per individual customer and
provide remittance services. Hence, the balance at the close of business on any
day should not exceed Rs.1 lakh per customer.
6. Payments banks can issue debit cards with
Visa, MasterCard or Rupay, and are allowed to set up their own ATMs (automated
teller machines), but they will not provide credit card facilities.
7. They cannot set up subsidiaries to undertake non-banking
financial services activities.
8. They will be able to provide locker
facilities.
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