The RBI will allow on-tap licensing of small finance banks (SFBs) to drive financial inclusion, it said on Thursday.
“A review of the performance of SFBs reveals that they have achieved their priority sector targets and thus attained their mandate for furthering financial inclusion. Hence, there is a case for more players to be included to enhance access to banking facilities to the small borrowers and to encourage competition,” an RBI statement on Developmental & Regulatory Policies said.
The RBI will issue draft guidelines for on-tap licensing of SFBs by the end of August. This will allow aspirants to apply for the SFB licence at any time, provided they fulfil specified requirements.
However, the RBI said more time is needed to review the performance of payments banks before considering their licensing to be put on tap.
“Availability of on-tap licence for SFBs is positive, especially for entities operating in the micro-finance segment, as this can improve their liability profile and provide them with sustainable growth model,” said Supreeta Nijjar, vice-president and sector head, financial sector ratings, Icra.
The sector is expected to see a lot of competition, since the RBI had earlier also allowed urban cooperative banks to convert into SFBs. “During the previous round of 2014, 72 applicants applied for SFB licence, and only 10 were granted licence in 2015,” said Naresh Takkar, managing director and Group CEO, Icra.
State Bank of India Chairman Rajnish Kumar said the decision to issue draft for “on-tap” licensing of SFBs will add depth to the sector.
“The growth of SFBs so far (up to end-June 2018) has been largely driven by their strategy of offering higher deposit rates to attract customers. Providing better service delivery and garnering trust while shoring up asset quality will be a challenge as well as a key to their future success,” said the RBI in its 2018 annual report.
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