Players seek clarification on small and payment bank final guidelines

Clarifications on capital requirement and scope of activities by niche banks sought

Entities interested in applying for niche banking guidelines have sought further clarity from the Reserve Bank of India (RBI) on factors such as capital requirement, branch expansion, scope of activities and on players eligible to apply. Applicants had asked for further clarity after the niche banking licence guidelines that came out last month.

In its final guidelines on small banks, RBI had said proposals from large industrial and business houses will not be entertained. Applicants have asked how the regulator would define “large” corporates. “We have asked if large would be defined on the basis of net worth or on the basis of market capitalisation. Also, if the promoter of a large business house wants to act as a promoter to form a small bank, will that be allowed?” asked an analyst with an international professional services firm.  

Guidelines for both small and payment banks had said other financial and non-financial activities of promoters will have to be ring-fenced. Players have asked if an applicant will have to ring fence its people, processes, IT systems, infrastructure, logistics, HR, finance function and other indirect support functions.

For niche banks, RBI had said the minimum paid-up equity capital would have to be Rs 100 crore. Players have asked  if only the amount brought in via cash mode would be counted or whether the amount of share premium already infused or to be infused will also be counted as a part of Rs 100 crore.

Sunil Kulkarni, deputy MD of Oxigen, which is interested in applying for a payment bank licence, said they have also sought clarification on the branches that need to be set up.

"RBI has said that it does not expect Payment Bank to be branchless banks but we want to understand that what as per the regulator would constitute a branch and how is it going to be different from the existing bank branches."

Other existing Prepaid instrument players have also checked with RBI if a Payments Bank and PPI can co-exist within the same promoter group as separate entities.

In the final guidelines, RBI had stated that the applications will be initially screened by RBI to ensure prima facie eligibility of the applicants but it may apply additional criteria to determine the suitability of applications, in addition to the prescribed 'fit and proper' criteria. In this regard, players have asked the regulator to throw more light on what will constitute the additional criteria.

RBI has asked interested parties to apply by January 16. The application will be screened by an external committee, which will send its recommendations to the central bank.