The Reserve Bank is all set to issue the first set of differential bank licences, small finance and payments banks, by the end of August, a move aimed at encouraging financial inclusion.
While announcing the bi-monthly monetary policy review RBI Governor Raghuram Rajan said that he hopes to announce at least one set of new bank licences (either small finance or payments banks) to review all of their past decisions. It has already received recommendations from the external advisory committees.
Nachiket Mor chaired the panel on payment banks, while Usha Thorat chaired the one on small finance banks. An internal committee of the RBI, composed of its deputy governors and the governor, is going through each of these applications again. Finally, a set of recommendations will be presented to the RBI board, which will decide the final list of successful applicants.
The RBI has received 72 applications for small finance banks, which will help to meet credit and payment needs of small businesses, and 41 applications for payment banks, which will essentially provide small savings accounts. The applicants include the Department of Post, Tech Mahindra, the Videocon Group besides big corporates like the Ambanis and the Birlas.
The objective of giving new bank licenses is to promote financial inclusion by offering saving vehicles and credit to small business units and other unorganized sector entities. Small finance banks will primarily undertake basic banking activities of acceptance of deposits and lending. They would be lending to unserved and under-served sections, including small business units, small and marginal farmers, micro and small industries and unorganised sector entities.
Payment banks would be allowed payment and remittance services through various channels. However, such lenders cannot issue credit cards or undertake lending activities. Differentiated banking entails going beyond the current universal banking framework and to serve specific purposes. The idea was first suggested by Nachiket Mor committee in January 2014.
