Guidelines to set up small finance banks soon: Rajan

RBI governor says such banks will cater to small customers across the country

The guidelines for setting up small finance banks catering to small customers would be issued in a few weeks, Reserve Bank of India governor Raghuram Rajan said here on Wednesday.

Small finance banks have been proposed keeping in mind the goal to achieve financial inclusion through a variety of banking institution models.

Rajan was here to deliver a keynote address on technology usage in banking at awards function organised by the Institute for Development and Research in Banking Technology.

He also exhorted the existing banks to buttress their financial inclusion efforts by optimally using technology such as tying up with mobile phone service providers to offer banking services on mobile platforms, so that banking services become accessible and affordable to millions of Indians.

“We have tried very hard to get banks co-operate with mobile companies. But the transactions are still very low,” he said, while stating that communication and mobile technologies should be an important part of growth and expansion of services.

Rajan noted the regulator had released guidelines on mobile banking and that the impact of new forms of competition should not be underestimated. “That is why we have progressed on putting out guidelines for payment banks... to allow mobile companies and perhaps some software companies and perhaps some retail houses to enter into the business of payment banking,” he said.

To sustain business, these  payment banks should have back-end tie-ups with the regular commercial banks, working as banking correspondents for them. “To my mind, a viable model would be a payment bank which essentially allows the access throughout the country, but at the bank’s end (it should have) a tie-up with a regular commercial bank so that it can offer services over and beyond the payment bank,” Rajan said. He added that these will encourage more alliances in the banking services field.

He said similar steps should be initiated for small- and medium-size firms as they, too, have similar issues of accessing finance. “We are trying to progress on trade receivable finance where small- and medium-size enterprises that have receivables against large enterprises can actually in an automated fashion have those receivables put up for auction bought by various people with surplus cash — financial institutions or banks — at a discount, such that those buyers get an interest for the loans and small business can get money quickly so they can go out and invest more in the business and grow.”