RBI sets Rs.100 cr floor capital for payments, small banks

The Reserve Bank of India (RBI) has set a minimum paid-up capital of Rs.100 crore for those who wish to set up payments and small banks.

Releasing the draft guidelines for licensing of these banks, the RBI has said that the promoters will have to have an initial minimum capital of at least 40 per cent. It has prescribed a lock-in period of five years for promoters’ holding.

In case the promoters’ stake is in excess of 40 per cent, it will have to be brought down to 40 per cent within three years from the date of commencement of business of the bank. This has to be brought down to 30 per cent within 10 years, and further to 26 per cent within 12 years from the date of commencement of business.

The central bank seeks suggestions and comments on the draft guidelines by August 28.

According to the draft guidelines, existing authorised non-bank pre-paid instrument issuers (PPIs), non-banking finance companies (NBFCs), corporate BCs (business correspondents), mobile telephone companies, super market chains, companies, real sector co-operatives and public sector entities are eligible for setting up a payments bank. The guidelines allow even banks to take equity position in a payments bank as permitted under the Banking Regulation Act, 1949.

The activities of a payments bank will be restricted to acceptance of demand deposits, and provision of payments and remittances services. A payments bank, says the RBI, will further the cause of financial inclusion by providing small savings accounts and payments and remittance services to migrant labour workforce, low-income households, small businesses and other unorganised entities. The idea is to facilitate high volume and low value transactions in a secure and technology-driven environment.

A payments bank cannot set up subsidiaries to undertake non-banking financial activities. The RBI has made it clear that the non-banking financial service activities of the promoters must be ring-fenced. Also, the payments bank is not allowed to undertake lending activities. The payments bank, however, has to comply with the SLR (statutory liquidity ratio) and CRR (cash reserve ratio) requirements. The RBI has made it clear that “a payments bank should ensure widespread network of access points particularly to remote areas, either through their own branch network or BCs or through network provided by others.’’
Resident individuals/professionals with ten years of experience in banking and finance, companies and societies are eligible to set up small banks. Existing non-banking finance companies, micro-finance institutions , and local area banks can also convert themselves into small banks after complying with the requisite legal and regulatory requirements. The area of operations of the small bank will be restricted to contiguous districts in a homogenous cluster of States/Union Territories so that the bank has the ‘local feel’ and culture. However, if considered necessary, the bank will be allowed to expand its area of operations beyond contiguous districts in one or more States with reasonable geographical proximity. “Its branch expansion plan for the initial three years will need prior approval of RBI after which, based on experience, the RBI may consider relaxing this condition,’’ the guidelines say.

“In the initial five years, the small bank shall further the objectives for which it is set up. Therefore, the small bank shall primarily undertake basic banking activities of acceptance of deposits and lending to small farmers, small businesses, micro and small industries and unorganised sector entities,,’’ say the guidelines.

A small bank also cannot set up subsidiaries to undertake non-banking financial services activities, and its promoters have to ring-fence their like activities. A small bank has to comply with the CRR and SLR requirements. And, the RBI has fixed an upper limit for loan/investment exposure to an individual or group at 15 per cent of its capital funds. Also, a small bank has to comply with the priority sector lending targets.

The payments bank/small bank, according to the guidelines, will be registered as a public limited company. As in the private sector banks, the voting rights in payments and small banks, too, are capped at 10 per cent.