Indian Bank Licenses on Tap - RBI releases Draft Guidelines for Licensing of Payments Banks and Small Banks

            To encourage more types of banks in India, Reserve Bank of India released the today, the Draft Guidelines for “Licensing of Payments Banks” and Draft Guidelines for “Licensing of Small Banks”.

            All interested parties and general public can go through the guidelines and views can be shared by emailing to cgmicdbodco@rbi.org.in. The views can be shared till August 28, 2014. After August 28, 2014, Reserve Bank will consolidate the feedback; comments and suggestions review them and issue the final guidelines.

The final guidelines will also lay down the process to submit the Applications for setting up Payment Banks or Small Banks.

            As the name indicate, payments banks and small banks are “niche” or “differentiated” banks; with the common objective of furthering financial inclusion.

The Small Banks will provide a whole suite of basic banking products, such as, deposits and supply of credit, but in a limited area of operation.

On the other hand, Payment Banks  will provide a limited range of products, such as, acceptance of demand deposits and remittances of funds, but will have a widespread network of access points particularly to remote areas, either through their own branch network or through Business Correspondents (BCs) or through networks provided by others. They will add value by adapting technological solutions to lower costs.

The entities eligible to set up a Payments Bank include existing non-bank Pre-paid Instrument Issuers (PPIs), Non-Banking Finance Companies (NBFCs), corporate BCs, mobile telephone companies, super-market chains, companies, real sector cooperatives, and public sector entities.

The entities eligible to set up a small bank include resident individuals with ten years of experience in banking and finance, companies and societies, NBFCs, Micro Finance Institutions and Local Area Banks.

The eligible entities should be “fit and proper” in order to be eligible to promote payments banks and small banks. The Reserve Bank would assess the ‘fit and proper’ status of the applicants on the basis of their past record of sound credentials and integrity; financial soundness and successful track record of at least five years in running their businesses.

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

Reserve Bank of India, will provide the ‘In principle approval’, for setting up Small Banks and Payment Banks within 90 days, from receipt of report from the Independent External Advisory Committee.