The Reserve Bank of India (RBI) has granted in principle approval to 10 entities to set up small finance banks to provide basic banking services to small farmers and micro industries. The in-principle approval will enable these entities comply with the guidelines on Small Finance Banks and will be valid for 18 months. 10 entities are: Au Financiers (India) Ltd, Capital Local Area Bank, Disha Microfin Private Ltd, Equitas Holdings P Limited, ESAF Microfinance and Investments Private Ltd, Janalakshmi Financial Services Private Limited, RGVN (North East) Microfinance Limited, Suryoday Micro Finance Private Ltd, Ujjivan Financial Services Private Ltd and Utkarsh Micro Finance Private Ltd. As per RBI guidelines, the small finance banks can provide basic banking services in order to promote financial inclusion. It will include services like accepting deposits and lending to the unbanked sections such as micro business enterprises, small farmers, micro and small industries and unorganised sector entities
What are Small Finance Banks and Payment Banks??
GUIDELINES FOR PAYMENT BANKS
The objective of allowing licences for opening Payments banks is financial inclusion in order to provide i) savings/deposit account and payment/remittance services to migrant labour, low income households, small businesses, unorganized sector and to other users. The creation of payment banks will aim at bringing the lower strata of population into mainstream of banking. It seeks to provide banking accounts and transfer of funds facility to people who may be migrant laborers or doing small business.
CRITERIA FOR PROMOTER:
The resident Indians or companies, retail chains, other such enterprises controlled by Indians can apply for Payment Bank. The promoter should be fulfilling ‘fit and proper’ criteria of RBI and should have experience of running a business professionally for atleast 5 years.
A Scheduled Commercial Bank can be partner with promoter group, however shareholding of commercial bank in Payment bank will be limited to the extent as per Section 19(2) of banking Regulation Act. As per section 19(2) a bank cannot hold shares exceeding 30% of its paid up capital of the company or 30% of its own paid up capital and reserves whichever is lower. In simple words a commercial bank cannot hold more than 30% of the paid up capital of the Payment Bank.
The minimum paid up capital of the bank should be atleast Rs.100.00Crores. The promoter’s contribution to equity should be atleast 40% of the paid up capital for atleast first 5 years from the date of commencement of business. Foreign holding can be as per norms of FDI.
SCOPE OF ACTIVITIES:
Payment Banks can accept demand deposits and it will be limited to maximum Rs.1.00 lac per individual customer
Banks can issue ATM Debit card. However, they will not be authorized to issue Credit Cards
They can provide Payment and Remittance Services through various channels
They can sale Third party products like Insurance policies, Mutual Funds etc.
GUIDELINES FOR SMALL FINANCE BANKS
The objective of Small Finance banks is to provide i) savings vehicle and ii) to provide finance to small businesses, small and marginal farmers, businesses under unorganized sector and other such businesses thereby furthering the theme of financial inclusion.
CRITERIA FOR PROMOTER
The promoter should have professional experience of more than 10 years in banking and finance business. The existing Non Banking Finance Companies, Micro Finance Units etc can seek conversion into small banks. The promoter groups should satisfy the ‘fit and proper’ criteria of RBI and should have professional experience of atleast 5 years of running their business.
The small finance banks should have minimum capital of Rs.100.00Crores and promoters should have capital of atleast 40% which can be brought down to 26% within 12 years of commencement of business. Foreign holding in capital is allowed as per FDI Policy for private sector banks.
SCOPE OF ACTIVITIES
The Small Finance Banks can undertake normal banking activities like acceptance of deposit and finance to unserved and underserved sections like small business units, small and marginal farmers, micro and small enterprises and unorganized sector etc.
At least 50% of its loan portfolio should constitute advances upto Rs.25.00lacs.
The Small Finance Banks will be subject to same prudential norms and guidelines. Banks will have to maintain CRR and SLR on the line of other scheduled commercial banks.