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Telecom companies, supermarkets can start banks

Final RBI guidelines on small and payments banks aimed at bigger financial inclusion

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Telecom companies, supermarket chains, individuals, non-banking finance companies (NBFCs), business correspondents of banks can now convert themselves into small finance banks or payment banks, according to the final guidelines on small finance banks and payments banks by Reserve Bank of India (RBI).

Resident individuals and professionals with 10 years of experience in banking and finance; and companies and societies owned and controlled by residents can also set up these banks provided they have a paid up equity of Rs 100 crore. Individuals can also set up a payment bank in joint venture with existing banks.

Existing non-bank pre-paid payment instrument (PPI) issuers like Itz cash and Oxigen can now be a payments bank. These banks can provide small savings accounts, payments/remittance services to migrant labour workforce, low income households, small businesses, other unorganised sector entities and other users. However, it cannot lend and can accept deposit only up to Rs 1 lakh per individual.

However, proposals from large public sector entities and industrial and business houses, including from NBFCs promoted by them, will not be eligible for licenses to set up private banks.

The minimum paid-up equity capital for these banks would be Rs 100 crore. In view of the inherent risk of a small finance bank, it shall be required to maintain a minimum capital adequacy ratio of 15% of its loans.

The promoter's minimum initial contribution to the paid-up equity capital of such small finance bank shall at least be 40%. If the initial shareholding by promoter in the bank is in excess of 40%, it will have to be brought down to 40% within a period of five years. The promoter's minimum contribution of 40% of paid-up equity capital shall be locked in for a period of five years. Promoter's stake has to come down to 30% of the paid-up 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.

The aggregate foreign investment in a private sector bank from all sources will be allowed up to a maximum of 74% of the paid-up capital of the bank.

"The payments banks and small finance are planned to play a critical role in the supply of credit to micro and small enterprises, agriculture and banking services in unbanked and under-banked regions in the country," RBI said.

The small banks will undertake basic banking activities of acceptance of deposits and lending to unserved and underserved sections including small business units, small and marginal farmers, micro and small industries and unorganised sector entities. It can also undertake activities such as distribution of mutual fund units, insurance products, pension products.

Aman Bhargava, director, financial services advisory, Grant Thornton India, said, "The financial inclusion agenda has received a significant boost with the issuance of these guidelines by the RBI. The basic objective is to extend the range of financial services to the hitherto unbanked which were forced to rely on non-regulated means -- to money lenders, chit funds, cash transfers for migrant labourers to their home villages, etc."

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