Small Farmers and Business Get Reason to Cheer as Reserve Bank of India Grants Licenses to 10 Small Banks

Thursday, September 17, 2015

The Reserve Bank granted small bank licences to 10 applicants, most of which are engaged in microfinance, in a move seen as one of the most far-reaching initiatives on financial inclusion since bank nationalisation in the late 1960s. 

Among those that bagged licences are Au Financiers backed by private equity firm Warburg Pincus, Ujjivan Financial, Utkarsh Micro Finance and Janalakshmi Financial, run by a former Citibank derivatives trader. 

Those that didn't make the cut include leading microfinance company SKS Microfinance, Vaya Finserv backed by Vikram Akula, once the poster boy of Indian micro lending, Dewan Housing Finance Ltd and brokerage IIFL Holdings, in which Indian-born Canadian billionaire Prem Watsa plans to raise his stake. 

The banks will further the agenda of financial inclusion by offering credit to small businesses and marginal farmers besides units in the unorganised sector. They will also provide avenues for savings and will be high-tech but low-cost institutions, as envisaged by the central bank. 

"This is a big milestone for us and also for the entire microfinance industry — as many as eight MFIs (microfinance institutions) made the cut," said Govind Singh, MD & CEO, Utkarsh Micro Fin. "The challenge for almost every MFI going forward would be to raise domestic equity since, as non-banks, we had relatively easy access to foreign equity and therefore had gone for it." 

Microfinance companies are governed by separate laws and some of the licence winners may need to lower overseas holdings under Banking Regulations. 

The 10 were chosen from 72 applicants following detailed scrutiny of financial viability, business plans and other checks by three independent committees, said the regulator. Others that have got the licences include Capital Local Area Bank Ltd from Jalandhar and Disha Microfin Ltd based in Ahmedabad. "An important factor was proposed reach into unbanked areas and underserved sections of the population," said RBI. "The detailed scrutiny involved assessment of financial soundness, proposed business plan, fit and proper status based on due diligence reports received from regulators, investigative agencies, banks, etc." 


Source: The Economic Times (link opens in a new window)

lending, microfinance