For Reserve Bank of India, small is beautiful

The small finance banks should be rechristened national development banks as their mandate is financial inclusion

The Reserve Bank of India (RBI) will soon open its window accepting applications for small finance banks’ (SFBs) licence through the year. The draft guidelines for such “on-tap” licensing is likely to be ready by August. The decision is important in many ways.

First, it encourages the non-banking finance companies (NBFCs), including microfinance institutions (MFIs), to become banks. This will take care of liquidity problem (in the long run), governance and financial inclusion. Second, it charts out the glide path: Every entity that wants to become a universal bank will have to take this route of transformation. It also means that