Gates to open for niche banks

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After issuing licences to small finance banks and payments banks last year, the Reserve Bank of India (RBI) is looking to introduce more differentiated banking licences, which will allow these new entities to specialise in one particular aspect.

“In addition to recently licensed differentiated banks such as payments banks and small finance banks, the Reserve Bank will explore the possibilities of licensing other differentiated banks such as custodian banks and banks concentrating on wholesale and long-term financing,” said RBI’s first bi-monthly monetary policy in FY17. Nachiket Mor, a member of the central board of RBI, had in a report recommended the setting up of specialised banks. The report had emphasised the need to move away from the universal banking model, in which a bank offers all financial products and services and has to meet all regulatory mandates and priority-sector obligations, to specialised banks in a differentiated licence framework.

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The Mor committee had also emphasised the need for a wholesale bank. In line with it, RBI has decided to put out a paper in this regard by the end of September. Apart from offering specialised services, these differentiated banks can be in a better position to manage risk and capital requirements and, therefore, the pressure on balance sheets can be mitigated.

The regulator has already issued licences to 11 payments banks and 10 small finance banks last year. Some of these would start operations later this year.

These banks will be similar to the existing commercial lenders and will undertake basic banking activities such as accepting deposits and lending to un-served and under-served sections. On the other hand, payments banks can offer current and savings account deposits of up to Rs 1 lakh. They can issue debit cards and offer internet banking but are not allowed to lend or issue credit cards.