Millennium Post

RBI releases final guidelines for payment & small finance banks

The move, aimed at deepening financial inclusion, will allow entities like mobile operators, super market chains and real estate cooperatives to set up payment banks, while existing NBFCs and micro finance lenders among others can apply for small finance banks.

The minimum paid-up equity capital for these new types of banks has been set at Rs 100 crore, RBI said, while adding that small Finance Banks can transit to universal bank subject to fulfilment of certain conditions.

Earlier this year, RBI issued licence to IDFC and Bandhan to set up full-fledged banks in first licenses issued after a gap of over a decade. RBI said that the ‘objectives of setting up of small finance banks will be to further financial inclusion by provision of savings vehicles, and supply of credit to small business units, small and marginal farmers, micro and small industries and other unorganised sector entities, through high technology-low cost operations.’

The eligible promoters for small finance banks would include resident individuals or professionals with 10 years of experience in banking and finance, and companies and societies owned and controlled by residents will be eligible to set up small finance banks. Existing Non-Banking Finance Companies (NBFCs), Micro Finance Institutions (MFIs), and Local Area Banks (LABs) that are owned and controlled by residents can also opt for conversion into small finance banks. Promoter/promoter groups should be fit and proper with a sound track record of professional experience or of running their businesses for at least a period of five years in order to be eligible to promote small finance banks.

RBI has invited applications till 16 January from those interested in setting up payment banks or small finance banks, while public sector entities will also be eligible to establish a payment bank and foreign holding would be allowed as per the FDI limits (which is 74 per cent currently).

A promoter or promoter group can also have a joint venture with an existing scheduled commercial bank to set up a payments bank. The existing scheduled commercial banks can take equity stake in a payment bank as per the banking norms. Payments bank will initially be restricted to holding a maximum balance of Rs 100,000 per individual customer. They will be allowed to issue ATM/debit cards, but not the credit cards. They can also distribute non-risk sharing simple financial products like mutual funds and insurance products.

The payments bank cannot undertake lending activities, RBI said. The promoter's minimum initial contribution to the paid-up equity capital of such payments bank shall at least be 40 per cent for the first five years from the commencement of its business. The operations of the bank should be fully networked and technology driven from the beginning, conforming to generally accepted standards and norms. The bank should have a high powered Customer Grievances Cell too. An External Advisory Committee comprising eminent professionals like bankers, chartered accountants, finance professionals, etc, will evaluate the applications.
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