Photo: Mint
Photo: Mint

Regulator to allow ‘on-tap’ licences for small finance banks

  • Central bank says a review of the performance of small finance banks reveals they have achieved their priority sector targets
  • RBI says that in case of payment banks, more time was needed to review their performance

MUMBAI : The Reserve Bank of India on Thursday said it will begin accepting licence applications for small finance banks all through the year, with draft guidelines for such “on-tap" licencing likely by end-August.

The central bank said a review of the performance of small finance banks reveals they have achieved their priority sector targets and thus attained their mandate for furthering financial inclusion. “Hence, there is a case for more players to be included to enhance access to banking facilities to the small borrowers and to encourage competition," it said.

In the regulator’s guidelines for licencing of payments banks and small finance banks in the private sector issued on 27 November 2014 it had said that after gaining experience in dealing with these banks, RBI would consider on-tap licencing of these banks. However, RBI said that in case of payment banks, more time was needed to review their performance before considering the licencing of these banks to be put on tap.

In September 2015, RBI granted in-principle approval to 10 applicants to set up small finance banks. Then, in August 2016, it paved the way for universal bank licences to be available on tap. It released the final set of guidelines for eligible entities to apply for licences as and when they chose, keeping doors closed to large business houses. NBFCs, qualified individuals and some private companies were eligible to apply for licences.

RBI, under former governor Raghuram Rajan, made efforts to create a more diverse banking sector. After Rajan became governor in September 2013, it licensed two universal banks (IDFC Bank and Bandhan Bank) in addition to a slew of payments banks and small finance banks to expand access to financial services. Rajan had also proposed more differentiated licences for wholesale banking and custodian banking to make the sector more diverse.


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