Payment Bank – The Interplay between National Securities Depository Limited (NSDL) and Application Supported by Blocked Amount (ASBA)

The Disruptive inspiration for NSDL:

          The 17,625 and new DP Service Centres can be tapped to open Saving Bank Accounts with the icing on the cake being linked Demat Accounts with minimal service charges.

          As ASBA is mandatory from January 1,2016 the float in the respective saving bank accounts will be higher as compared to float in SB Accounts of other Payment Banks.  

          What is your opinion?

          On 19^th August 2015, Reserve Bank of India announced the first set of entities that were issued “in-principle” approval to set up payments banks.

These 11 entities “in-principle” approvals will be valid for a period of 18 months, during which time the applicants have to comply with the requirements under the Guidelines and fulfil the other conditions as may be stipulated by the Reserve Bank.

On being satisfied that the applicants have complied with the requisite conditions laid down by it as part of “in-principle” approval, the Reserve Bank would consider granting to them a licence for commencement of banking business.

Each of the 11 Applicants has their own set of strengths and weaknesses.

Each applicant has already commenced the brainstorming part.

Each applicant in the next six months will unveil roadmaps towards the goal of a full fledged licence to commence Banking.

Numerous articles in print and digital financial publications are trying to unravel of this Reserve Bank of India notification.

Securities Exchange Board of India (SEBI) Press Release on June 23^rd 2015 offers some pointers about NSDLs’ path towards a full fledged banking licence.  

The below SEBI Board decision will be keenly analysed by NSDL Strategy Team - Streamlining the Process of Public Issues - Obviating the need to issue cheques

          In order to reduce the post-issue timeline for listing from existing T+12 days to T+6 days, increase the reach of retail investors and reduce the costs involved in public issue of equity shares and convertibles, SEBI Board took the following decision based on ASBA popularity.

Presently more than 99.5 % applications are received from centres where ASBA facility is available. Based on an analysis of a few public issues, in terms of amount, ASBA applications account for 99.90% of the total bid amount received from all investors.

Considering the reach and advantages of ASBA, SEBI has made it mandatory for all investors to make ASBA applications.

Amongst many other significant advantages, ASBA enables investors to give the mandate for payment of application money in the application form itself without suffering loss of interest for the intervening period.

ASBA also obviates the hassle of refund of money by the issuer as per the difference in application amount and the amount for which shares are finally allotted.

In order to substantially enhance the points for submission of applications, Registrar and Share Transfer Agents (RTAs) and Depository Participants (DPs) shall also be allowed to accept application forms (both physical as well as online) and make bids on the stock exchange platform. This will be over and above the stock brokers and banks where such facilities are presently available.

To help intermediaries and banks to modify their existing systems and train their staff and also enable the investors to adapt to the new system, there will be a phase-in period of 6 months. Accordingly, a public issue which opens on or after January 01, 2016 will have to follow the new system.

NSDLs promoters/shareholders are:

Promoters

• Industrial Development Bank of India Limited (Now, IDBI Bank Limited)
• Unit Trust of India (Now, Adminstrator of the Specified Undertaking of the Unit Trust of India)
• National Stock Exchange of India Limited

Other Shareholders (i.e a captive market share)

• State Bank of India
• HDFC Bank Limited
• Deutsche Bank A.G.
• Axis Bank Limited
• Citibank N.A.
• Standard Chartered Bank

Few Statistics:-

Active Client Accounts -- 1,39,47,307

Depository Participants -- 270

DP Service Centres -- 17,265

DP Geographical Coverage (Cities/Towns) – 1632

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.