Niche bank guidelines get thumbs-up from those keen to apply

With the Reserve Bank of India (RBI) giving more leeway in terms of the scale and size of operations for payment banks and small banks, those interested in applying for a licence for such banks have given the final guidelines the thumbs-up.

In the draft guidelines, RBI had said payment banks would have to have initial paid-up capital of at least Rs 100 crore and maintain net worth of at least Rs 100 crore at all times. However, in the final guidelines, the regulator has clarified it isn't mandatory to maintain net worth of Rs 100 crore.

Shinjini Kumar, leader (banking and capital markets) PwC India, says this is a positive move. "In the initial stages, a bank will have to incur costs in terms of setting up business or on the technology front; therefore, it might not be possible to maintain the net worth criteria."

Rishi Gupta, chief operating officer and executive director, FINO PayTech, says the final payments bank guidelines seem more favourable than the draft ones. "RBI has allowed banks to provide third-party products such as mutual funds and insurance. Now, banks will also be allowed to function as a business correspondent of another bank and these things stand out," he said.

FINO PayTech, a payments solutions company, had expressed interest to apply for a payment bank licence.

Pramod Saxena, founder, chairman and managing director of Oxigen, a payment solutions provider keen to apply for a payment bank licence, said including international remittance in the scale of operations would be a huge positive for players.

In the draft guidelines, RBI had stated promoter shareholding in such banks should be cut to 40 per cent within three years, 30 per cent within 10 years, and 26 per cent within 12 years of the date of commencement of business. However, in the final guidelines, dilution of promoter stake hasn't been made mandatory. RBI has stated promoters of payment banks should hold at least 40 per cent of the paid-up equity capital for the first five years of the business.

Aman Bhargava, director (financial services advisory), Grant Thornton India LLP, says, "As the key will be low cost per transaction and the revenue will be dependent on volumes, companies with a strong focus on technology are more likely to apply."

Industry has also welcomed the guidelines on small banks. As there won't be any geographical restriction in terms of the operation of such banks, interest from players is likely to pick up, say analysts. "The final guidelines on small banks are more practical compared to the draft ones. They have removed the geographical restriction. Now, a lot of microfinance institutions (MFIs) and non-banking financial companies (NBFCs) in the small lending business might become eligible to become small finance banks," said Vibha Batra, group head (financial sector ratings), Icra.

Alok Prasad, chief executive, Micro Finance Institutions Network (MFIN), believes a significant number of NBFC-MFIs will be interested in becoming small banks. "The guidelines are tightly focused on creating a class of institutions whose primary business will be providing basic banking services to the lower end of the market. It is also a good road map for NBFC-MFIs to 'graduate ' and come to the mainstream as small banks. Also, the minimum capital requirement of Rs 100 crore is not a major constraint, as many MFIN members are already well-capitalised, with an equity base in excess of the threshold prescribed by RBI."

Some believe NBFCs are more suited to become small banks. "Since there will be no restriction in operations, this proposition will be very good for them. Gold loan NBFCs and asset finance companies will want to be converted into small banks. The payment banks model is probably more suitable for, say, mobile operators, as payment banks cannot undertake lending activities," said a senior official at a gold loan NBFC.