RBI norms on differentiated banking this fiscal year

Mumbai: The stage is almost set for the entry of differentiated banking regime in India, or banks that would undertake specific banking activities, with the Reserve Bank of India (RBI) planning to issue guidelines on this in fiscal year 2015.

The RBI is planning to issue norms on such banks in the current fiscal, Bloomberg reported on Friday, citing RBI deputy governor R. Gandhi.

In April, while issuing in-principle approval for IDFC Ltd and Bandhan Financial Services Pvt. Ltd to set up commercial banks, RBI governor Raghuram Rajan had indicated that the central bank would kick off the process of issuing differentiated banking licences soon.

The apex bank will also issue licences on a continuous basis to qualified aspirants instead of opening the licensing window after long intervals, Rajan had said.

The Idea of differentiated banks was first mooted in a discussion paper on banking structure reforms early last year.

Differentiated banks exist in developed markets, wherein they undertake specific banking activities such as retail, infrastructure financing and rural banking etc, depending on the core expertise of the organization.

The firms that failed to get licences from the central bank in April can apply for differentiated, on-tap licences. A total of 25 companies were in the race for new banking licences.

Recently, RBI had also announced its plans to permit payments banks or banks that deal with small deposits and offer transaction services but not credit.

Payments banks, which will bring financial services to unbanked areas of the country, can start operations with a capital of just ₹ 50 crore, since all their money will be invested in safe government securities. In contrast, a full-service bank requires an entry capital of ₹ 500 crore. They will be required to comply with all RBI guidelines for commercial banks.

The concept of payments banks was first proposed by a Reserve Bank of India (RBI) committee led by board member Nachiket Mor.