NBFCs, telecom and microfinance cos among RBI’s payment bank hopefuls – Report

Recent draft guidelines on small and payment banks have enthused about 100 entities including microfinance institutions, telecom players, non-banking finance companies (NBFCs) and public sector companies to apply for such banking licence once RBI invites applications for the same, reveals the ASSOCHAM latest study.

These interested firms are awaiting final guidelines which will provide more clarity to firm up their plan to apply for the ‘differentiated bank’ licence to further the objective of financial inclusion, according to a study conducted by ASSOCHAM.


Banking is a sensitive subject in India as traditional banks are wary of technology changes. New technology has made it possible for Internet companies such as Google and Amazon and telecom operators like Vodafone and Airtel to offer a lot of services that traditionally only banks could.

Such services are largely around the payments space, and do not involved the core banking activity of lending and taking deposits. However, payments are a lucrative source of income for banks and they are loathe to let go of their monopoly in this activity.

As a result of pressure from banks, the country’s regulator has put in onerous conditions on innovative products like mobile banking, mobile payments, Internet-payment service Paypal, Ozone etc. However, since taking over as RBI governor Raghuram Rajan has introduced many reforms, one of which is the ongoing process of introducing limited or payment bank concept.

Those which are looking to enter small banks space are awaiting clarifications like if a small bank can operate in an industry clusters across various states or it can operate in a particular state only, said Mr. D S Rawat Secretary General ASSOCHAM.

Besides, presence in a particular area could lead to potential threat of concentration risk that final guidelines can provide more light to avoid such a situation, added Mr. Rawat.

The study said, for example if there is draught or flood in a particular area, it will have quite a significant adverse impact on the balance sheet of a small bank with little diversification of risk.

Small banks would perform all basic banking operation like a commercial banks but with restricted area presence. It can collect deposits and disburse small-ticket loans to farmers and small and medium businesses, unorganised sector through high technology-low cost operations as par draft norms circulated by RBI.

As far as payment banks are concerned, it will cater to marginalised sections of society, including migrant labourers, for collecting deposits and remitting funds. They would not be allowed to indulge in lending operation.

According to the study, there are many interested firms for implementation of this model also but expecting lowering of minimum capital requirement to Rs 50 crore in the final framework.

Such banks can be set up with a minimum capital of Rs 100 crore as against Rs 500 crore required for normal commercial banks, as per the draft.

Indeed such banks once become functional would be great step towards financial inclusion and weed out moneylenders who charges usurious interest rate from the country, Assocham said. It can bring 42 per cent financially excluded population into the formal banking system, it added.

“It is a shame that money lending still exist after 67 years of independence and it is time to get rid of this in right earnest,” Assocham said.

One of the steps towards this was RBI giving in-principle approval to IDFC and Bandhan Financial Services to set up full-fledged banking operations in April this year. The Reserve Bank last came out with a set of guidelines for licensing of new banks in the private sector in February 2013. The process of licensing culminated with the announcement by the Reserve Bank (Press Release dated April 2, 2014) that it would grant “in-principle” approval to two applicants who would set up new banks in the private sector within a period of 18 months.