RBI issues final norms for payment banks, small banks

In its bid to further financial inclusion in the country, the Reserve Bank of India (RBI) has announced the final guidelines for licensing of small financing banks in the private sector.

Under the guidelines, resident individuals/professionals with 10 years of experience in banking and finance; and companies and societies owned and controlled by residents will be eligible to set up small finance banks.

Existing non-banking finance companies (NBFCs), micro-finance institutions (MFIs), and local area banks (LABs) that are owned and controlled by residents can also opt for conversion into small finance banks. Promoter/promoter groups should be ‘fit and proper’ with a soundtrack record of professional experience or of running their businesses for at least five years to be eligible to promote small finance banks.

The minimum paid-up equity capital for small finance banks shall be Rs 100 crore. The promoter’s minimum initial contribution to the paid-up equity capital of such a small finance bank shall at least be 40 per cent and gradually be brought down to 26 per cent within 12 years from the date of commencement of business of the bank.

The small finance banks will have to extend 75 per cent of its adjusted net bank credit (ANBC) to the sectors eligible for classification as priority sector lending (PSL) by the RBI and at least 50 per cent of its loan portfolio should constitute loans and advances of upto Rs 25 lakh, the guidelines say.

If the small finance bank aspires to transit into a universal bank, it would be subject to fulfilling minimum paid-up capital/net worth requirement as applicable to universal banks; satisfactory track record of performance as a small finance bank and the outcome of RBI’s due diligence exercise, the guidelines say, adding that the final date of applications will be January 16, 2015.

The decision to issue an in-principle approval for setting up of a bank will be taken by the Reserve Bank and it will be final, the guidelines say, adding that the validity of the in-principle approval issued by RBI will be eighteen months.

RBI also released final guidelines for licensing payment banks. Existing non-bank pre-paid payment instrument (PPI) issuers; and other entities such as individuals/professionals; non-banking finance companies (NBFCs), corporate Business Correspondents (BCs), mobile telephone companies, supermarket chains, companies, that are owned and controlled by residents; and public sector entities may apply to set up payment banks.