 "Small banks and payment banks: Key things you need to know")
The Reserve Bank of India on Thursday issued draft guidelines on two new formats of banks: 1) small banks and 2) payment banks. While small banks would operate in a specified area, payment banks would be involved in mobilising deposits.The move is aimed at increasing financial inclusion, or providing formal financial services to those who have no access to bank.
Payment bank
A payment bank would provide small savings andhigh-volume-low-value payments/ remittance servicesto migrant labour,low-income households, small business and the unorganised sectors.
Who can apply
Existing non-bank pre-paid instrument issuers, NBFCs, banking correspondents (BC), mobiletelephone companies, super-market chains, companies, cooperatives and PSUs are eligible toapply. Even existing banks can pick up a stake in these banks. All they need to do is open 25% of their accesspoints in rural areaseither through their own branch network or through business correspondents or through networks provided by others. Pre-paid instruments allow customers to buy goods and services using an amount stored in them. An example for a prepaid instrument in India is ItzCash. Banking correspondents are banks’ agents who are permitted to give banking services to the unbanked.
The RBI has saidpreference will be given to those applicants who propose to set up payments banks with access points primarily in under-banked states, districts in the north-east, east and central regions of the country.
Conditions:
1. A payment bank will be able to collect deposits but will not be able to lend money. It has to invest all funds in government securities.
**2.**The minimum paid-up capital requirement of both payment banks and small banks is kept at Rs 100 crore, of which the promoters’ initial minimum contribution will be at least 40 percent, to be locked in for a period of five years.
3. The minimum capital required to start the bank would be Rs 100 crore and the bank would have to have a minimum capital adequacy ratio of 15 percent.
The promoters would need to have at least 40 percent for the first five years while progressively reducing any excess beyond 40 percent within three years of commencement of business. The stake should be further reduced to 30 percent within a period of 10 years and to 26 percent within 12 years of commencement of business.
Small banks:
These banks have been envisioned to supply credit to micro and small enterprises, agriculture and banking services in unbanked and under-banked regions in the country. Their area of operations would be restricted to contiguous districts but would be allowed to neighbouring states.
Who can apply:
The companies eligible to set up a small bank include resident individuals with 10 years of experience in banking and finance, companies and societies, NBFCs, micro finance institutions and local area banks.
Conditions:
1. A small bank will be allowed to lend, but with restrictions on where they can operate. Alsolending should be directed at farmers and small enterprises and half of the loans must have a ticket size of less than Rs 25 lakh.
2. The minimum paid-up capital requirement is kept at Rs 100 crore, of which the promoters’ initial minimum contribution will be at least 40 percent, to be locked in for a period of five years.
3. These banks would have to maintain all the regulatory requirements like CRR (cash reserve ratio), SLR (statutory liquidity ratio) and PSL (priority-sector loans).
4. The loan portfolio has to be well diversified within its area of operations
However, according to a report by Kotak Securities, niche banking comes with niche problems.
“Small banks can be more profitable but payment banks can give better growth. Small banks, given their charter, may have issues on scalability and events like a debt waiver, impact of high interest rate in MFI and the consequence of being involved in the vagaries of regional growth can result in volatile earnings performance. On the other hand, payment banks may be constrained in lending as they will be allowed to invest only in G-Sec portfolios,” it said in a note today.
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