India’s RBI Ready to Award More Banking Licences

India Post and local mobile companies have a good chance of securing a payments bank licence, according to the Reserve Bank of India (RBI) governor Raghuram Rajan. Microfinance institutions are also contenders for gaining the chance to migrate to commercial banking.

The RBI is expected to invite applications for setting up smaller payment banks across India, which will cater to small businesses and low income households, by the end of this month after completing guidelines which are now being reviewed by the Indian government.

“In the weeks to come, we will put out guidelines on new entities called payment banks, which will basically offer accounts to the [financially] excluded,” said Rajan, who was addressing an audience of micro financiers at a conference organised by lender National Bank for Agriculture and Rural Development (NABARD).

Although state-owned India Post failed to gain a licence in the first round of applications, Rajan said: “We visualise mobile companies, but also companies with a large rural presence – maybe shops, maybe kiosks, but as well as possibly post office that would come into the payment bank licencing scheme.”

RBI is also likely to award licences to small finance banks. Rather than having local area banks focussed on two or three districts, it has been recommended that there should be all-India small finance banks which focus on small lending but which would be allowed to accept deposits.

“This licence should allow successful microfinance institutions to migrate towards a banking licence without abandoning the core business of working with the small and the excluded,” said Rajan. However, he warned microfinance lenders against usurious lending practices and also criticised the loan waiver practices of certain Indian state governments.

NABARD is among the entities to have expressed interest in setting up banks. “We would be keen to look at it closely and consider it as an option if the guidelines permit,” said chairman Harsh Kumar Bhanwala. NABARD would seek a banking licence through is non-banking finance subsidiary NABARD Financial Services (NABFINS).

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