'Give MFIs, NBFCs time to convert branches to banking outlets'

MFIs and NBFCs that have obtained permission to set up small finance banks should be given three years to close or convert their existing branches into banking outlets to facilitate an orderly transformation, an RBI panel suggested today.
Of the 10 entities which got in-principal approval from RBI for small finance banks (SBFs), 8 are Micro Finance Institutions and one is an NBFC. They have a large number of offices for reaching the underserved segment.
During discussions with Internal Working Group (IWG) on Rationalisation of Branch Authorisation Policy, SFBs indicated that their NBFC/MFI branches/offices currently undertake activities primarily pertaining to asset business such as, disbursement of loans.

IWG felt that given their large number of branches across the country, such entities would need time for transition of their existing structures to bank branches.
"The Group felt that the regulatory framework should provide an enabling environment for banks to conduct their business rather than impede their business," the IWG report placed on the RBI's website said.
The panel recommended "grandfathering" of MFI/NBFC structures of SFBs to be provided to facilitate an orderly transformation and to minimise the risk of transition.

The existing network of these entities would be frozen as on the date of their getting 'license' for the bank.

"As regards their existing NBFC/MFI branches, they may be given a time period of 3 years to close or convert these into 'banking outlets'," it said.
Till such time, the report said, the existing structures may continue and would be treated as 'Banking Outlets' though not immediately reckoning for the 25 per cent norm.
Presently, a bank must open at least 25 per cent of the total number of branches in unbanked rural areas.
The panel recommended that any electronic kiosks and ATMs/CDMs/BNAs, if manned by bank's staff or Banking Correspondent, for providing limited customer based banking services to their walk-in customers, should also be treated as a 'banking outlet' for the purpose of these regulations.

The report said the thrust of the recommendations is to ensure availability of banking services in all centres, including remotest corners through low cost delivery channels rather than on the physical presence of branches. A two-phased approach has been recommended.