RBI to offer more than two licences for small, payments banks

The central bank had earlier this year granted 'in-principle' nod for banking to only two new players, Bandhan and IDFC, out of 25 banking aspirants

The Reserve Bank of India (RBI) will allow more than two players to set up small finance and payments banks, its governor Raghuram Rajan said on Tuesday.

"I don't have a specific number in my mind. My guess is, and this is just a guess, that it will be certainly more than two. I don't want to put an upper limit, I don't want to put a lower limit other than saying the lower limit will probably not be two," Rajan told reporters in Mumbai.

Earlier this year, the central bank surprised many by granting 'in-principle' approval for banking licence to only two new players - Bandhan and IDFC - out of a list of 25 applicants.

New banking licences were being offered for the first time in a decade with the objective of expanding the reach of financial services to masses and the decision to grant only a couple of licences appeared to fall short of expectations.

The applications of large corporate houses such as Anil Ambani's Reliance Group, Kumar Mangalam Birla-led Aditya Birla Group and the Bajaj Group were ignored even though industry analysts felt that their deep pockets would have accelerated the progress of financial inclusion.

RBI, however, had kept the door open saying that it would use the learning from its licensing exercise to revise the guidelines appropriately and move to give licences more regularly, almost on tap. Recently, it has released guidelines for licensing of small finance banks and payments banks.

"We need to ensure that there a variety of participants that are licenced here, so we can learn from the experience. I think that would imply a reasonable number. Hopefully, we will get enough applicants so that we can choose a good number," Rajan said.

Companies willing to set up small finance and payments banks can apply for a licence till January 16, 2015. An external advisory committee will evaluate the applications while the decision to grant an in-principle approval will be taken by RBI. The in-principle approval will remain valid for 18 months.

Rajan said it will probably take three to four months to offer new licences for creation of these banks.