India: Many Queue Up for Small-Bank Licences

Aug 2014
India, August, 19 2014 - The interested firms are awaiting final guidelines which will provide more clarity to firm up their plant to apply ‘differentiated bank’ licence to further the objective of financial inclusion

The 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, according to an Assocham study.

The chamber said that 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.

“Those which are looking to enter small banks space are awaiting clarifications like if it can operate in an industry clusters across various states or can it operate in a particular state only.” 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, said Assocham.

“For example if there is draught or flood in a particular area, it will have quite an adverse impact on the balance sheet with little diversification of risk,” said Assocham. Small banks would perform all basic banking operation like a commercial banks but with restricted area presence. 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 but are expecting lowering of minimum capital requirement to `50 crore in the final framework. Such banks can be set up with a minimum capital of `100 crore.

“Such banks once become functional would be a great step towards financial inclusion and will weed out moneylenders. It can bring 42 per cent financially excluded population into banking system,” it said.

Source : The Asian Age

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