RBI issues operating guidelines for Payment Banks, Small Finance Banks

07 Oct 2016 Evaluate

The Reserve Bank of India (RBI) has issued separate operating guidelines for Payment Banks (PBs) and Small Finance Banks (SFBs), as the players in the two sectors have differentiated nature of business and focus on financial inclusion. The RBI’s guidelines allows payments banks and small finance banks to use digital banking to open bank accounts while streamlining their risk mitigating norms to make the experiment of differentiated banking a robust one.

According to RBI, PBs can accept only savings and current deposits. The aggregate limit per customer shall not exceed Rs 100,000, as provided in the Licensing Guidelines. PBs will have to maintain a minimum investment to the extent of not less than 75 percent of 'demand deposit balances' (DDB) as on three working days prior to that day, in Government securities/Treasury Bills with maturity up to one year that are recognised by RBI as eligible securities for maintenance of Statutory Liquidity Ratio (SLR). Further, they will maintain balances in demand and time deposits with other scheduled commercial banks, which shall not be more than 25 percent of its DDB as on three working days prior to that day. For product approval, PBs at the time of submitting application for licence should submit to RBI a list of financial products they intend to offer with a clear description. Any new products to be introduced thereafter should be intimated to RBI for information.

The guidelines also says that annual plans for opening of physical access points by the payments bank for the initial five years would need RBI’s prior approval. The first of such plans should be submitted to the RBI before commencement of business. After the initial stabilisation period of five years, and after a review, the RBI may liberalise the requirement of prior approval.

On the other hand SFBs may issue passbooks but should give written/printed proof of the first time deposit, in addition to electronic confirmation; send statement of accounts every six months if passbooks are not issued; provide account information to SMS/e-mail/internet banking and should provide electronic confirmation for each account transaction. RBI also said that SFBs will not be permitted to undertake any para-banking activity except that allowed as per the Licensing Guidelines and the related FAQs issued. Further, SFBs will be permitted to use Interest Rate Futures (IRF) for the purpose of proprietary hedging. Small finance banks will be allowed exemption from the existing regulatory ceiling on inter-bank borrowings till the existing loans mature or up to three years, whichever is earlier. Afterwards, it will be on par with scheduled commercial banks.

RBI had granted in-principle approvals to 11 entities for setting up payments banks (PBs) in August 2015 and 10 for Small Finance Bank (SFB) in September 2015. The capital adequacy framework is same for both type of banks - Minimum Capital Requirement (15 percent) and Common Equity Tier 1-6 percent.

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