The Reserve Bank of India (RBI) has issued draft guidelines to allow entities like mobile operators to set up two types of financial institutions – payment banks and small banks, whose operations will be restricted to specified areas. These financial institutions will have uniform capital requirement of Rs 1 billion, according to the draft norms.
A payment bank will be able to take deposits but not provide lending services and would have to invest all the funds in government securities. A small bank will be allowed to provide lending services, but with restrictions on their location. Further, the lending would be limited only to small enterprises, with half of the loans must have a size of less than Rs 2.5 million. Small Banks will also have to maintain reserve requirements like any other large bank.
According to RBI, the primary objective of setting up of payments banks will be to facilitate financial inclusion by providing small savings accounts, and payments, remittance services to migrant labour workforce, low-income households, and small businesses. It further contended that the area of operations of the small bank will normally be restricted to contiguous districts in a homogenous cluster of states, union territories so that the bank has ‘local feel’ and culture.
