The Reserve Bank of India has finally released Draft Guidelines for “Licensing of Payments Banks” and Draft Guidelines for “Licensing of Small Banks”. The Reserve Bank has sought views/comments on the draft guidelines from all interested parties and general public. Final guidelines will be issued and the process of inviting applications for setting up of Payments Banks and Small Banks will be initiated after receiving feedback, comments and suggestions on the draft guidelines.
Types of banks
Both, payments banks and small banks are “niche” or “differentiated” banks; with the common objective of furthering financial inclusion. While small banks will provide a whole suite of basic banking products, such as, deposits and supply of credit, but in a limited area of operation, payments banks will provide a limited range of products, such as, acceptance of demand deposits and remittances of funds, but will have a widespread network of access points particularly to remote areas, either through their own branch network or through Business Correspondents (BCs) or through networks provided by others. They will add value by adapting technological solutions to lower costs.
The entities eligible to set up a Payments Bank include existing non-bank Pre-paid Instrument Issuers (PPIs), Non-Banking Finance Companies (NBFCs), corporate BCs, mobile telephone companies, super-market chains, companies, real sector cooperatives, and public sector entities. The entities eligible to set up a small bank include resident individuals with ten years of experience in banking and finance, companies and societies, NBFCs, Micro Finance Institutions and Local Area Banks.
The eligible entities should be “fit and proper” in order to be eligible to promote payments banks and small banks. The Reserve Bank would assess the ‘fit and proper’ status of the applicants on the basis of their past record of sound credentials and integrity; financial soundness and successful track record of at least five years in running their businesses.
The minimum paid up capital requirement of both payments banks and small banks is kept at Rs. 100 crore, of which the promoters’ initial minimum contribution will be at least 40 per cent, to be locked in for a period of five years. Shareholding of the promoters should be brought down to 40 per cent within three years, 30 per cent within a period of 10 years, and to 26 per cent within 12 years from the date of commencement of business of the bank.
CTMfile take: Eventually, this will make cash management within India more efficient, but expect to be made to jump through many legal hoops first.
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