Payments and small banks coming soon

Wish to set up a bank?
Well, you need to have experience in banking and finance sector and some Rs 40 crore to invest.

According to the draft guidelines on Payments Banks and Small Banks issued by the Reserve Bank of India (RBI) on Thursday, an individual with 10 years' experience in banking and finance sector can start a bank with Rs 100 crore capital, of which 40% should be the promoter's contribution.

These banks are meant to help in reaching financial inclusion goals of the government, providing credit to the poor, marginal farmers and those who do not have bank accounts.

While payments banks cannot undertake lending activities, they will be allowed to undertake remittances and manage deposits, small banks can undertake various kinds of lending activities for small businesses and the agriculture sector.

Payments banks will be involved in providing payments and remittance services and demand deposit products to small businesses and low-income households. They will initially be restricted to holding a maximum balance of Rs 1 lakh per customer. These banks will be allowed to raise current deposits and savings bank deposits. Deposits mobilised by a payments bank would be covered under the deposit insurance scheme of the Deposit Insurance and Credit Guarantee Corporation of India. The money raised will be used to enable the remitters, and the excess deposits will be held in government bonds.

Shareholding by promoters in the bank in excess of 40% shall be brought down to 40% within three years from the date of commencement of business of the bank. Further, the promoter's stake should be brought down to 30% of the paid-up voting equity capital of the bank within a period of 10 years, and to 26% within 12 years from the date of commencement of business of the bank.

Rishi Gupta, COO & ED, FINO PayTech, which provides banking technology platform for financial inclusion, said, "Payments banks will help de-clutter commercial banks from financial inclusion activities and bring in more focused approach in serving the rural masses. We at FINO PayTech look forward to be a part of this ecosystem."

FINO has heavily invested in creating a tech-enabled rural banking infrastructure and has extensive reach across the country – spread across 28 states, servicing over 25 million active banking customers through 28,000 customer service points (CSPs) across 500 districts offering basic savings/withdrawal, remittance, government payments and cash management services.

"We will require to further analyse the guidelines and subsequent business models before taking any call," said Gupta.

According to RBI, small banks should primarily undertake basic banking activities of acceptance of deposits and lending to small farmers, small businesses, micro and small industries and unorganised sector entities. It can also undertake other simple financial services activities with the prior approval of the RBI. However, it cannot set up subsidiaries to undertake non-banking financial services activities.

The other financial and non-financial services activities of the promoters, if any, should be kept distinctly ring-fenced and not be mingled with the banking business. After the initial stabilisation period of five years, and after a review, RBI may liberalise the scope of activities of small banks.

Entities other than the promoters will not be permitted to have shareholding in excess of 10% of voting equity capital of the bank. The small bank shall comply with the priority sector lending targets and sub-targets as applicable to existing domestic banks. For this purpose, the bank would have to build its priority sector lending portfolio from commencement of its operations.