A Brief Overview On Small Banks And Payment Banks
The reserve bank of India has recently announced the draft guidelines on two new types of banks. To achieve the financial targets of the government plans of launching small banks and payment banks are underway. The primary aim of launching these banks is to provide credit to the poor and help the marginal farmers improve their financial condition. As per the guidelines financial services will be provided to that section of Indian population who do not access to a bank. It is being planned that small banks will be operating in specific areas while payment banks would be mobilizing deposits.
An insight into payment banks
In the near future, payment banks would be providing small savings to households with low income and the migrant labours. However, payment banks will not be able to carry out lending activities. RBI has stated that among applicants who wish to set up the payment bank preference will be given to those who will set up access points of the payment bank in under-banked states. As per the draft guidelines payment banks will have to invest all the money in government securities. They will be allowed to keep some amount of money in the vault in order to meet customer requirements. You will need at least a capital of Rs.100 crore to launch the payment bank.
A small bank model
Small banks which are being launched will provide credit to both small enterprises and agricultural services which are located in under-banked areas. Most of the lending activities will cater to small enterprises and farmers where the loan amount is less than Rs.25 lakhs. All regulatory requirements such as SLR and CRR will have to be kept up to by the small banks. As these two new categories of banks have low-entry barriers, they will catch the attention of several promoters.
Operating in remote areas
The main goals of launching these differentiated banks are financial inclusion. According to the plans, payment banks will have their access points in remote areas of the country which do not have banking facilities. These banks will have a wider network either trough their bank branches or through business correspondents. With RBI releasing the draft guidelines of these niche banks, several companies are turning their dreams into reality. They had been harbouring ambitions of entering the banking industry. As doors open for the niche banks, these companies are making a grab for licenses.
According to draft guidelines
After the plans of these two differentiated banks have been announced by RBI according to the draft guidelines promoters will have to contribute 40% while setting the bank up. The central bank is open to comments till August 28th, 2014. You can put in your views and ideas on the draft rule. This plan of launching the differentiated banks will threaten the oligopoly which the existing banks enjoy. However this initiative will improve the lives of millions who do not have access to banks. The aim of providing formal financial services in remote areas should turn out a success.
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