RBI Issues Guidelines For Small & Payments Banks

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The Reserve Bank of India on Thursday issued final guidelines for companies seeking to set 

up payments banks and small finance banks in a bid to expand banking services to more 

people and small businesses. Elaborating the eligibility criteria, the central bank 

has  included non-bank prepaid card issuer, mobile companies, telecom companies, 

business correspondents, PSU companies, real sector cooperatives and supermarket chains 

as promoters of payments banks, while  it has allowed NBFCs, MFIs and local area banks to 

convert to small banks. 

The RBI says that promoters can have JVs with banks for payments  bank but they must 

have experience of running the business for 5 years. 

These banks can take demand deposits of maximum Rs 1 lakh per customer and can issue 

ATM/debit cards but not credit cards. 

Also, they can offer payments, remittance services and can distribute financial products like 

mutual funds and insurance. 

However, the RBI has made it clear that  payments banks cannot undertake lending 

activities. Payments banks can accept deposits and remittances but cannot provide loans. 

Small finance banks are aimed at lending to  “unserved and underserved sections including 

small business units”, the Reserve Bank of  India (RBI) said. Reacting to the news, Ashvin 

Parekh of APAS says the guidelines are a little more liberal compared to what he was 

expecting at one point in time. 

This may be of some interest to all three constituents i.e. to telecom companies, 

supermarket chains and also to NBFCs, he adds. But Parekh says, the only question now is 

how to establish financial viability of such entities if they are going to work purely out of the 

interest income received on SLR.  Sanjay Kapoor, former CEO, Bharti Airtel  feels the 

proposition about joint ventures with banks has made the proposition more interesting. 

“One of the basic criteria's  is anybody who has a very large distribution network is an 

eligible bachelor from a viability perspective for payments bank,” he told CNBC-TV18. As 

per the new guidelines, the banks must maintain cash reserve ratio (CRR) and should keep 

75 percent of their deposits in SLR up to 1 year maturity. 

Moreover, these banks need to keep maximum 25 percent as deposits  with other banks for 

operational use, says the new guideline. 

Under the new norms for payments banks, the minimum paid-up equity capital is Rs 100 

crore and the leverage ratio should not be less than 3 percent. Liabilities must not exceed 

net worth by 33.3x and the promoters must hold 40 percent of equity for the first 5 years. 

Moreover, the guidelines say that foreign holding should be as per FDI policy for private 

banks and they must have a high-powered customer grievances cell. The RBI does not allow 

large state-run entities and business houses to set up small finance banks and bars JVs by 

different promoter groups to set up such entities. Companies will have to apply by January 

16, 2015, for licences in both categories, and the central bank said it would consider more 

applications at a later stage.

Ref : http://www.moneycontrol.com/news/economy/rbi-issues-guidelines-for-smallpayments-

banks_1239475.html?utm_source=ref_article