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RBI to Issue Licenses of Small Banks and Payments Banks

Reserve Bank of IndiaThe Reserve Bank of India has received 72 applications for small finance banks and 41 for payments banks

The Reserve Bank of India (RBI) is processing about 100 applications for small finance banks and payments banks and might issue licenses in a few months.

“We are processing them (applications) and hope to issue licenses to fit-and-proper applicants in a few months. We hope these new entities will speed up our financial inclusion efforts in a big way,” RBI Deputy Governor R Gandhi said during a lecture at Sastra University in Tamil Nadu.

RBI has received 72 applications for small finance banks and 41 for payments banks.  The objective of licensing small banks is to promote financial inclusion by offering savings vehicles and credit to small business units and other unorganized sector entities.  Payments banks, too, are positioned to widen the financial reach by providing small savings accounts and payments/remittance services to the migrant labor workforce, low-income households and other unorganized bodies, among others.

Gandhi further said RBI had granted in-principle approval for two new private sector universal banks (IDFC and Bandhan Financial Services). RBI has also expressed its intention to make universal bank licenses available “on tap”.

The deputy governor said the available options for RBI to facilitate banking expansion are through private sector lenders and foreign banks.  For well-documented reasons, he said RBI had been very cautious of allowing unrestricted and unbridled growth of foreign banks in India through their branch banking mode.

“Hence, after a long process of consultation since 2005, finally in November 2013, we came out with our policy for allowing foreign banks through the wholly-owned subsidiary model. The scheme is yet to take off, though two foreign banks have since approached us formally in this regard,” Gandhi added.

Though the reach and scope of banking has increased, the huge demand for financial services remains unfulfilled.  Commercial banks in India comprise 26 public sector banks, 20 private, 44 foreign, four local area banks and 56 regional rural banks.

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Source:  Business Standard India

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