RBI issues final norms for payment, small finance banks

Introducing a new concept of niche banking in India, RBI today issued final norms for payment banks and small finance banks that would allow mobile firms and supermarket chains, among others, to enter the banking arena to cater to individuals and small businesses.
The move, aimed at deepening financial inclusion and boost saving habits, comes within seven months of RBI issuing two full-fledged banking licences in April this year after a gap of over a decade.
As per the guidelines, those seeking to set up these two new categories of banks would need minimum Rs 100 crore of capital and fulfil the necessary 'fit and proper' criteria, among other conditions. Those interested, would need to apply before January 16 for first round of such permits, while RBI may come up with another round at a later stage.

Among others, existing NBFCs and micro finance lenders would be allowed to set up small finance banks, while large public sector enterprises and big industrial houses would not be allowed to establish such banking entities.
For payment banks, which would not be allowed to undertake lending activities, the state-run entities would be eligible to apply.
Such banks will initially be restricted to holding a maximum balance of Rs 1 lakh per individual customer. They will be allowed to issue ATM/debit cards as also other prepaid payment instruments, but not the credit cards.

They can also distribute non-risk sharing simple financial products like mutual funds and insurance products, but Non resident Indians will not be allowed to open accounts.

RBI said it wants the new banks to leverage on technology and have a presence through internet banking, but was quick to clarify that it will not allow any "virtual" bank without a physical presence on the ground.
While such niche banks are common in advanced economies, there are 27 state-owned and 22 private sector banks with full fledged banking operations at present in India.