RBI nod not must for rural expansion

Banks will no longer need permission of the Reserve Bank of India (RBI) to open branches in rural and semi-urban centres, officially termed Tier-3 to Tier-6 centres.

In its second-quarter review of monetary policy for 2009-10, RBI has relaxed its branch authorisation policy. From now on, it said, domestic scheduled commercial banks, except regional rural banks, would be free to open branches in Tier-3 to Tier-6 centres. These are currently defined as having a population of up to 50,000 people.

Banks will continue to be required to take RBI’s authorisation for opening branches in Tier-1 (metropolitan cities) and Tier-2 (urban but not metro cities) centres.

In planning for branches in Tier-3 to Tier-6 centres, RBI has suggested that banks have at least a third of such branches in under-banked districts of under-banked states. It will notify a list of such districts.

The number of branches opened by a bank in such underbanked areas will remain one of the major criteria for RBI in allowing opening of branches in Tier-1 and Tier-2 cities. Besides, the overall performance of banks in financial inclusion (extending banking services through non-banking channels in rural/underbanked areas), priority sector lending and quality of service will continue to remain the other factors in allowing them to open branches in Tier-1 and Tier-2 places.

Meanwhile, to improve priority sector lending and help urban-centric banks meet such targets, RBI has decided to have a working group to examine the issues involved in introduction of priority sector lending certificates (PSLCs).

This is based on the recommendation of the Raghuram Rajan committee on financial sector reforms which had suggested introduction of PSLCs for purchase by banks. PSLCs, according to the recommendation, would be issued by registered lenders for the amount of loans granted by them to the priority sector and by banks for the amounts in excess of their mandated priority sector lending requirements.

These certificates could be traded in the open market and banks unable to meet such targets could buy these certificates and thus meet the priority sector lending norms.

In pursuing the Business Correspondent model, RBI has allowed banks to appoint the following — individual kirana/medical/fair price shop owners; individual public call office operators; agents of small savings schemes of the government of India/insurance companies; individuals who own petrol pumps; retired teachers; and authorised functionaries of well-run self-help groups linked to banks as business correspondents, in addition to those permitted already.