The Reserve Bank of India (RBI) is likely to come out with final guidelines on starting payment banks by the end of this month.
Payment banks will offer accounts to smaller businesses and lower income households, and they will use technology to link them over the last mile.
“The guidelines on payment banks are currently with the government for comments. In the weeks to come, we will put out guidelines on new entities called payment banks,” RBI governor Raghuram Rajan said, while speaking at the National Microfinance Conclave 2014 arranged jointly by NABARD and SIDBI.
We visualise mobile companies, companies with a large rural presence, maybe shops, maybe kiosks, and, possibly the post office, coming into these payment bank licences, Rajan added.
The central bank had issued draft guidelines on payment banks in July, this year.Rajan said that the Reserve Bank is also contemplating the idea of small finance banks.
“One of the suggestions that we received was that instead of having local area banks effectively, that is focussed on two or three districts, we should allow for the possibility of all India small finance banks. But the key was that it should be focussed on small lending," Rajan said.
These small finance banks would be allowed to take deposits and would loan predominantly to small entities. This licence would offer an avenue for successful microfinance institutions to migrate towards a banking licence without the core business of working with the small and the excluded, Rajan added.
The central bank governor also came down heavily on loan waivers and interest subventions, saying that banks should look at alternate options.
“To my mind, broad-based interest subventions distort the price of credit and lead to misuse, and again we see that they distort prices and lead to the wrong kind of investments,” Rajan said.
We have an opportunity to move away from interest subventions to direct benefit transfers.
If you want to incentivise a particular activity, for example, small and marginal farmers, give them direct transfers and let them use it in whichever way they want, Rajan added.