RBI Guidelines for setting up payment banks and small banks by corporate houses

As reported in the Economic Times and First Post, RBI announced the final Guidelines for setting up payment and small banks in order to attract serious players as well as push financial inclusion. These Guidelines have allowed corporate houses to set up payment banks and also provide them with an option of forming joint ventures with commercial banks.

By issuing the final norms for payment banks and small finance banks that would allow mobile firms and supermarket chains, among others, RBI introduced the new concept of niche banking in India, to enter the banking arena to cater to individuals and small businesses. RBI issued two full-fledged banking licences in April this year after a gap of over a decade, and this move, aimed at deepening financial inclusion and boost saving habits.

As per the guidelines, those seeking to set up these two new categories of banks would need minimum Rs 100 crore of capital and fulfil the necessary ‘fit and proper‘ criteria, among other conditions. Those interested, would need to apply before January 16 for first round of such permits, while RBI may come up with another round at a later stage. However, existing NBFCs and micro finance lenders would be allowed to set up small finance banks, while large public sector enterprises and big industrial houses would not be allowed to establish such banking entities.

The state-run entities would be eligible to apply, for payment banks, which would not be allowed to undertake lending activities. However, such banks will be initially restricted to holding a maximum balance of Rs 1 lakh per individual customer and they will be allowed to issue ATM/debit cards as also other prepaid payment instruments. But they are not allowed to issue the credit cards. Besides, they can also distribute non-risk sharing simple financial products like mutual funds and insurance products, but Non resident Indians will not be allowed to open accounts.