RBI has COME out with guidelines for issuing licences for small finance banks as well as for payment banks.
The objectives of the small finance banks are: “primarily to undertake basic banking activities of acceptance of deposits and lending to un-served and under-served sections including small business units, small and marginal farmers, micro and small industries and unorganised sector entities.”
The initial paid up capital is Rs.100 crore with promoter’s minimum initial contribution fixed at 40 per cent. These banks can open branches anywhere. They would be subjected to all prudential norms and regulations of RBI as applicable to existing commercial banks, including SLR and CRR requirements. They are required to extend 75 per cent of their net bank credit to the sectors eligible for priority sector lending. They are also to ensure that at least 50 per cent of their loan portfolios constitute loans and advances of less than Rs. 25 lakh per account.
The other set of small banks proposed is the “payment banks.” Their objectives would be to further increase financial inclusion by providing small savings accounts and facilitating payment and remittance services to migrant labour workforce, low income households, small businesses, other unorganised sector entities and other users.
The list of eligible applicants is wide: existing non-bank pre-paid payment instrument-issuers and other entities such as individuals and professionals, NBFCs, mobile telephone companies, super-market chains, companies and real sector cooperatives, that are owned and controlled by residents. Public sector entities may apply to set up payments banks. They can mobilise small deposits up to Rs. 100,000 and adhere to the statutory requirements, but cannot lend.
Considering the inherent diversities of the Indian economy, more small banks are certainly necessary. However, working under the stringent stipulated conditions the viability of these banks may be under duress for long. The small gramin banks, which have been made bigger recently by merging 196 of them into 57, would now have a competitor in the small finance banks, to share their business.