RBI's payment bank norms to deepen financial inclusion

But RBI denies them entry into small banks; removes geographical restrictions

The Reserve Bank of India (RBI) on Thursday announced the final guidelines for setting up payment banks and small banks, to attract serious players and push financial inclusion. It allowed corporate houses, including telecom players and retail chains, to set up payment banks, and also gave them the option of forming joint ventures with commercial banks. But small banks will be a no-go area for companies, including promoters of large non-banking financial companies. Small banks will, however, not have any geographical restriction, as proposed in the draft norms.

Government-owned entities, such as India Post, have been allowed to set up payment banks, subject to their owner’s approval.

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.

The final norms on payment banks, analysts said, were more liberal than the draft guidelines issued in July this year. Rishi Gupta, chief operating officer & executive director of FINO PayTech, said the guidelines had expanded the scope of activities and given clarity on providing third-party products and services, such as mutual funds, insurance and pension. This would open avenues to earn fee income. The guidelines have also allowed sending and receiving remittances from multiple banks & international remittances and permitted payment banks to function as business correspondents of other banks.

The guidelines have also simplified the promoter structure — listing is mandatory within three years of reaching a net worth of Rs 500 crore, unlike the requirement to dilute promoter stake to 40 per cent within three years as stated in the draft.

Besides, payment banks should have a leverage ratio of at least three per cent (its outside liabilities should not exceed 33.33 times its net worth). This was around five per cent earlier.

Payment banks are not allowed to lend and must have a cap of Rs 1 lakh on deposits which can be invested in government securities, but they will have access to the RBI’s liquidity windows. They will be required to invest at least 75 per cent of their ‘demand deposit balances’ in statutory liquidity ratio (SLR)-eligible government securities and treasury bills with maturity of up to one year. They can hold a maximum of 25 per cent in current and time/fixed deposits with other scheduled commercial banks for operational purposes and liquidity management.

Payment banks will be allowed to issue debit cards, but not credit cards, and can offer current and savings account deposits.

CLEARING THE AIR
Payment Bank guidelines

Dos

• Have to use the word ‘Payment Bank’ in their name
• Can accept demand deposits; that is, current deposits and savings bank deposits, from individuals, small businesses and other entities
• Can hold a maximum balance of Rs 1 lakh per individual customer
• Will be allowed to set up branches, ATMs, business correspondents
• Will be allowed to issue debit cards and offer internet banking
• Can accept a large pool of money to be remitted, but the balance should not exceed Rs 1 lakh at the end of the day
• Can accept remittances to be sent to, or receive remittances from, multiple banks
• Permitted to handle cross-border remittances in the nature of personal payments on the current account
• Allowed to distribute mutual fund, insurance and pension products
• Can undertake utility bill payments

 Don’ts

• No NRI deposits should be accepted
• Cannot issue credit card
• Not allowed to set up arms to undertake NBFC activities
• Other financial and non-financial services of promoters should not be mingled with the working of payment banks

For payment banks, both cash-in and cash out services are allowed through various channels like branches, automated teller machines (ATMs) and business correspondents (BCs). Cash-in could be made through mobile banking and cash-out via point-of-sale terminals.

Initial capital requirement for payment banks, as well as small banks, have been set at Rs 100 crore. In case of the former, the promoter will have to retain a 40 per cent stake in the first five years.

For small banks, a promoter’s minimum initial contribution will be 40 per cent of the paid-up equity capital. If the initial shareholding is over 40 per cent, it has to be brought down to 40 per cent in five years. Further, the promoter’s stake should be brought down to 30 per cent within 10 years, and to 26 per cent within 12 years.

The cap on foreign shareholding has been kept in line with the existing rules for private-sector banks — at 74 per cent, with a minimum requirement of 26 per cent to be held by residents.

For small banks, the maximum loan size and investment limit exposure to single and group obligors has been restricted at 10 per cent and 15 per cent of its capital funds, respectively. Additionally, at least 50 per cent of their loan portfolio should constitute loans and advances of up to Rs 25 lakh, the RBI has said.

The central bank has also said that small banks can convert themselves into universal banks, though the transition would not be automatic; it will depend on the regulator’s approval.

The RBI has also allowed the promoter of a small bank to set up a payment bank. But banks of both types will have to be set up under a Non-Operative Financial Holding Company (NOFHC) structure.

“However, a promoter will not be granted licences for both universal bank and small bank, even if the proposal is to set those up under the NOFHC structure,” the RBI guidelines say.

Experts said more players would be interested in setting up small banks which liberated the scope of activity.

“Many players will now be interested in small banks as geographical restrictions proposed in the draft have been removed,” said Shinjini Kumar, leader (banking & capital markets), PwC India.

But large non-banking financial companies would still not be interested in setting up small banks, as they have to convert into banks. That would mean meeting reserve requirements, such as cash reserve and statutory liquidity ratios.

The banking regulator has indicated that applications will be invited on a continuous basis, after gaining experience from the present exercise.