RBI Issues Guidelines For Opening Small Banks & Payment Banks, Minimum Rs 100 Cr Capital Required

Reserve Bank of India has issued guidelines for seeking license required for opening Small Banks and Payment Banks in India; along with request for suggestions and opinions from general public on this decision. As per the announcement by RBI, telecom companies and NBFCs (Non Banking Financial Institutions) can now open such small and payment banks.

Small Banks and Payment Banks

As per the guidelines issued by RBI, these are ‘niche or differentiated’ banks having limited capabilities related to financial transactions. The purpose of these banks is to ‘furthering financial inclusion’.

For example, Small Banks can provide deposits and supply of credit in a limited area of operation while Payment Banks can offer limited products such as ‘acceptance of demand deposits’, remittance of funds etc.

Payment Banks will have an added advantage of opening a network of access points, even in rural areas. Such banks have been permitted to open their own branches or ask ‘Business Correspondents’ to open such branches which will help citizens from lower strata of society to take advantage of technology enabled banking system at lower costs.

Who can open such specialized banks?

As per RBI, the following are right now eligible to start such special banking operations:

Small Banks: Indian resident citizens with 10 years of experience in Banking and Finance, companies, societies, NBFCs, Micro Finance Institutions, Local Area Banks.

Payment Banks: Non-bank Pre-paid Instrument Issuers (PPIs), Non-Banking Finance Companies (NBFCs), corporate BCs, mobile telephone companies, super-market chains, companies, real sector cooperatives, and public sector entities.

Minimum Requirements to Open Such Banks?

Minimum paid up capital to open both Small and Payment Banks have been capped at Rs 100 crore, out of which 40% should be deposited by the promoter and should be locked for 5 years.

Why RBI Is Doing This?

In India, more than 50% of households are still outside the banking system. If we ignore organized business in urban locations, there is very little penetration of banking standards in rural India. RBI wants to push technology enabled banking paradigms in those areas where traditional banks are not venturing.

In April this year, RBI had issued 2 banking licenses for the first time in the last 10 years.

You can access the draft Guidelines for Licensing of Payments Banks and Licensing of Small Banks on RBI website.