BackRBI may issue small, payments bank norms by month end
Guidelines are currently with Union govt; supermarket chains, post offices to be able to apply for licences
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Mumbai: The Reserve Bank of India (RBI) is set to issue final guidelines for small and payments banks and will invite applications by the end of this month, governor Raghuram Rajan said on Thursday.
Rajan said the final guidelines for the proposed bank categories are currently with the central government for feedback. He added that candidates such as supermarket chains and post offices would be able to apply for these licences.
In July 2014, RBI had announced draft guidelines for small and payments banks on its website and sought comments from stakeholders. In the draft, the banking regulator said small banks would offer basic banking services such as deposits and supply of credit in a limited area of operation, while payments banks would offer limited services like remittances and accept demand deposits in a wider network.
The draft guidelines had suggested that minimum paid-up capital requirement of both payments and small banks licenses be set at ₹ 100 crore, of which the promoters’ initial minimum contribution would be 40%, locked in for five years.
The entities eligible to set up payments banks would be non-banking financial companies (NBFCs), pre-paid instrument issuers (PPIs), corporate banking correspondents, mobile telephone companies, supermarket chains and public sector entities, the draft guidelines said. Those eligible for small-bank licences would be companies with minimum 10 years of experience in the banking and finance sector, companies and societies, NBFCs, microfinance institutions and local area banks.
The central bank is now considering allowing a category of banks called small finance banks with all-India licences, after considering comments it received on the draft guidelines for small and payments banks, he said.
“One of the suggestions was that instead of having local area banks which are focused on two or three districts, we should allow for the possibility of all-India small finance banks. But the key is that these should be focused on small lending," Rajan said at a microfinance conclave organized by the National Bank for Agriculture and Rural Development (Nabard).
These banks, with an all-India licence, would be predominantly focused on lending to micro, small and perhaps medium enterprises. They would also be allowed to raise deposits, the governor said.
“These licences would offer an avenue for successful microfinance institutions to migrate towards a banking licence without abandoning the core business of working with the small and excluded," he said.
Rajan said microfinance institutions would need to be content with making “reasonable" profits instead of aiming for large benefits.
“You cannot, in good conscience, make a fortune at the bottom of the pyramid. You can, however, make reasonable profits," Rajan stated.
“It is a business and every business must be able to give a decent return to its investors. But they do not necessarily want very high return. It is not about profit maximizing, but about giving back reasonable return to investors," said Alok Prasad, chief executive officer of Microfinance Institutions Network, a microfinance industry body.
While talking about the issues that plague the Indian financial sector, the RBI governor stated that interest rate subventions and blanket loan waivers damage the credit culture that the sector is striving to develop.
He called for the end of these practices, while allowing for solutions such as loan restructuring and direct benefit transfers to serve the affected.
Presently, a 2% interest rate subvention is available to banks lending short-term crop loans up to ₹ 3 lakh per farmer “provided the lending institutions make available short term credit at the ground level at 7% per annum to farmers," according to 4 December 2013 notification on the RBI website. Farmers who pay their loans quickly get an additional subvention of 3%. Also, eligible exporters accessing bank credit too can avail of 3% interest rate subvention, according to guidelines issued in August 2013.
RBI has also historically opposed loan waiver programmes including a recent proposal by Andhra Pradesh to waive ₹ 1.5 lakh for each farming family for loans taken as of 31 March.
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