RBI aiming at new inclusive finance development with PBs and SFBs

Written by Felix Yang || 10 Oct 2016

On Oct 6th, the Reserve Bank of India (RBI) released the operating guidelines for Payment Banks (PBs) and Small Finance Banks (SFBs).

Since August last year, the RBI has approved 11 entities to set up PBs and 10 for SFBs. They are expected to improve the efficiency of serving unbanked groups and areas taking the advantage of technology. The new guidance aims to continue foster development in the inclusive finance areas. For example, the RBI has permitted mobile users to open an account with PBs promoted by telecom companies, under the condition that all the KYC requirements are met.

In addition, while opening accounts with PBs or SFBs, customers are not required to leave a 'wet' signature, rather, the process can be completed with digital signatures and electronic verification. Because it allows customers in less developed areas, such as farmers in the countryside, to access banking services more easily even if there are no branches around, the number of new customers may increase rapidly for PBs and SFBs.

According to the guidelines issued by RBI, PBs and SFB can only accept deposits up to Rs. 0.1 million (US$1502) per customer account. The capital adequacy requirement is 15% for these both types of banks while 9% for other regular banks. Besides the common equity tier one capital requirement is set at 6%.

PBs cannot issue loans and credit cards. Its services includes ATM cards, debit cards, online banking and mobile banking. There are also limitations in PBs’ investment categories. Because of the high safety requirements, investments such as government securities and Treasury Bills within one year maturity are acceptable by RBI. For SFBs, they are permitted to use Interest Rate Futures (IRF) only under the condition of proprietary hedging.

Among all the entities approved by RBI, Ujjivan Financial Services, Janalakshmi Financial Services and Au Financiers (India), have got in-principle licenses to set up SFBs, while Reliance Industries, Aditya Birla Nuvo, and Vodafone, have received approval for setting up PBs.

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