Small finance bank licences next month: Rajan

The small finance banks can provide basic banking services like accepting deposits and lending to the unbanked sections

After granting approval to 11 entities for payments banks, Reserve Bank of India on Thursday said it will announce small finance bank licences next month and allayed concerns that these new entities can pose any threat to existing banks.

RBI Governor Raghuram Rajan said that new payments banks would not pose any competitive threat to the existing banks and these new entities would rather serve as 'feeder' for the universal banks.

The RBI had received 72 applications for small finance bank licences and 41 applications for payment bank licences.

Out of these, RBI on Wednesday granted 'in principle' approval for payments bank to 11 entities, including big names like Reliance Industries, Aditya Birla Nuvo and Tech Mahindra, as also Airtel and Vodafone.

Those having applied for small finance banks include DHFL, IIFL Holdings, Lulu Forex, SKS Microfinance, UAE Exchange and Ujjivan Financial.

Rajan said that RBI would announce small finance bank licences next month.

The small finance banks can provide basic banking services like accepting deposits and lending to the unbanked sections such as small farmers, micro business enterprises, micro and small industries and unorganised sector entities.

The payments banks would be allowed to provide payments and remittance services, but can not issue credit cards or accept deposits beyond Rs 100,000.

They can issue ATM and debit cards and also distribute mutual fund and insurance products.

Rajan said introduction of Payments Banks will revolutionise banking, make it very exciting for customers and existing lenders will have to improve service to retain depositors.

"I've no doubt banking will become very competitive and universal banks have to provide full service to retain customers," Rajan said during a chat with State Bank of India chairperson Arundhati Bhattacharya at the conference organised by the country's largest lender.

The introduction of Payments Banks will make banking ‘exciting’ for the customers, Rajan said.

Bhattacharya had asked whether payments banks could lead to a ‘worry’ and eat into the low-cost deposit base for banks as the new banks have the option to accept deposits.

Rajan said there is no threat to the banking system and the PBs will serve as a feeder for the existing banks.

The bank branch can become a centre of activity, helping with cash handling or do some completely new work.

"There is a lot of scope for everyone, not everybody will succeed but this is a revolution which can happen," he said.

He also thanked Nachiket Mor for the work he has done on the PBs and quipped that the new banks can also be called "Mor Banks".

Among those selected by the Reserve Bank include Reliance Industries, Airtel, Aditya Birla Group among others, to start a Payments Bank.

They have an 18-month window in which they can submit their plans and get the final license.

Rajan further said there is a pick up in the economy and the rural economy may also see an uptrend if monsoon improves and sowing is good.

He also raised questions on the true strength of Chinese economy and said India shouldn't be concerned if yuan depreciation holds at current levels.

On the banking sector's bad debt problems, Rajan said the non-performing assets covered under credit guarantee trust for medium and small enterprises were high.

Besides, small companies were facing liquidity problem due to non-payment of bills, including those by the government.

At the event, Bhattacharya said that the stress level in mid-corporate banking segment was coming down.

Image: RBI Governor Raghuram Rajan. Photograph: Reuters