India: Impact of Small Finance Banks, Payment Banks to Be Felt in Three Years

Feb 2015
India, February, 05 2015 - The clock starts ticking now for the setting up of India's small finance banks and payment banks. Experts in the financial inclusion space feel it will take a good three years for the impact of this to be felt on the ground.

This is considering three months for the licences to be issued and another 18 months thereafter to set these up. Then they will need to begin operating and making a difference, which in all would mean concrete results some three years from now.

What is significant at the moment is the good beginning made in this space. In all, 113 applications for small finance banks and payment banks were received by the Reserve Bank of India on Monday, February 2, 2015. Out of these, 72 were for small finance banks and within these, the microfinance industry is expecting close to 20 applications from microfinance institutions (MFIs). These would be mainly non-banking finance company MFIs like SKS Microfinance and MFIs operating as business correspondents like VAYA Finserv led by Vikram Akula. The response seems overwhelming. Though not many are surprised by the enthusiasm for seeking small finance bank licences, there is a bit of surprise on the payment banks front given that payment banks will need all India network.

In its sixth bi-monthly monetary policy statement, 2014-15 by Governor Raghuram G. Rajan, the RBI said 72 applications for small finance banks and 41 applications for payments banks were received up to the deadline for submission on Monday, February 2nd. It also said, this number excludes applications that might have been received at other venues. Two External Advisory Committees (EACs) will evaluate the applications received for setting up of small finance and payments banks and thereafter make their recommendations to the Reserve Bank.

The EACs, the statement said, will be chaired by Usha Thorat, former Deputy Governor of the RBI and Nachiket Mor, Director, Central Board of the Reserve Bank. The final guidelines on payments banks and small finance banks as differentiated banks were placed on the Reserve Bank's website on November 27, 2014 and clarifications on the queries were released on January 1, 2015.

Source : Business Today

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