RBI spells out draft norms to set up payments banks, small banks in India

Thursday, July 17, 2014

The Reserve Bank of India (RBI) on Thursday spelled out draft norms to set up payments banks and small banks in India that will give a major push for financial inclusion, or the process of spreading banking services in the un-banked segments, in Asia’s third largest economy.

Payments would offer basic transactional services to customers and accept small deposits but wouldn’t offer loan products. Small banks are entities that will supply credit and savings products to small business units, small farmers, micro and small industries, and other unorganised sector entities.

Going by the RBI guidelines, non-bank pre-paid Instrument Issuers (PPIs), non-banking finance companies (NBFCs), corporate Business Correspondents, mobile telephone companies, super-market chains, companies, real sector cooperatives, and public sector entities, are eligible to apply to become payments banks.

The entities eligible to set up a small bank include resident individuals with ten years of experience in banking and finance, companies and societies, NBFCs, Micro Finance Institutions and Local Area Banks.

The maximum loan size and investment limit exposure to single/group borrowers / issuers would be restricted to 15 per cent of its capital funds. At least 50 per cent of its loan portfolio should constitute loans and advances of size upto Rs 25 lakh in order to extend loans primarily to micro enterprises.

Source: FirstBiz (link opens in a new window)

Base of the Pyramid, financial inclusion