ET Bureau | Jul 18, 2014, 02.45PM IST
MUMBAI: The Reserve Bank of India has proposed major reforms to boost financial inclusion, issuing draft guidelines allowing the likes of supermarkets and cellular phone companies to set up Payment Banks and permitting NBFCs and others to set up Small Banks whose licenses will be restricted to specified areas.
These two types of banks will have uniform capital requirement of Rs 100 crore, according to the draft norms. They will, however, have to follow distinctly different business models. TheRBI proposals inaugurate an era of differentiated banking licenses, an idea championed by governor Raghuram Rajan. The first reform proposal will potentially enable the likes of Future RetailBSE -0.68 % and Idea CellularBSE -1.10 % to set up Payment Banks. A Payment Bank will be able to take deposits, but cannot lend. It has to invest all the funds in government securities.
A Small Bank on the other hand will be allowed to lend, but with restrictions on where they can operate. Further the lending should be directed at farmers and small enterprises and half of the loans must have a ticket size of less than Rs 25 lakh. Small Banks will also have to maintain reserve requirements like any other big bank, which could take some sheen off the proposal's attractiveness.
Non-banking financial companies such as gold loan specialist Muthoot FinanceBSE 5.02 %, and Shriram Capital — the latter failed to get a banking licence in its last attempt -- can hope to secure a licence if the draft guidelines on Small Banks and Payments Bank, are operationalised. These NBFCs could be eligible to set up both sorts of banks.
"The primary objective of setting up of Payments Banks will be to further financial inclusion by providing small savings accounts, and payments, remittance services to migrant labour workforce, low-income households, and small businesses," the RBI said in its guidelines. "The area of operations of the small bank will normally be restricted to contiguous districts in a homogenous cluster of states, union territories so that the bank has 'local feel' and culture."
Rajan has been propagating the virtues of differentiated banks in a country like India where more than half the population does not have access to financial services. Although, the regulator has experimented with Local Area Banks in the past, these have failed to take off.
