India: Small Banks Will Provide Big Push to Financial Inclusion

Jul 2014
India, July, 18 2014 - Consultancy firm Deloitte today said RBI's move to allow specialised banking entities such as payment banks will go a long way in furthering the cause of financial inclusion, and prospective players, who leverage technology would get a head start.

The proposed payment banks' business model will need to be cost-effective and technology-enabled, as they will have to be volume-centric. Given the level of penetration and unmet needs, such banks will provide an alternate infrastructure, which will further the cause of financial inclusion, said Deloitte India Senior Director Monish Shah.

Last evening, the central bank issued draft guidelines for setting up of payment banks, which will cater to the marginalised sections of society, including migrant labourers, for collecting deposits and remitting funds. The regulator has set strict entry norms, including Rs 100 crore capital, for such banks.

On the prospective players who are likely to enter this area, Shah said there will be considerable interest not just among MFIs, NBFCs but probably telecom firms, retailers to leverage their large customer base and touch points.

For such banks to be viable, the interested parties will have to play on the technology front, he said.

The RBI said payment banks will need to have a minimum capital of Rs 100 crore as against Rs 500 crore required for full-fledged commercial lenders. "Both payments banks and small banks are 'niche' or 'differentiated' banks, with the common objective of furthering financial inclusion," it said.

The proposed small banks will provide a whole suite of basic products such as deposits and supply of credit, but in a limited area of operation, the monetary authority said.

Such entities will offer a limited range of products like acceptance of demand deposits and fund remittances and will not be allowed to lend directly to end customers.

The idea of differentiated banks was mooted in a RBI- appointed panel's report in last November.

Governor Raghuram Rajan had said in April, when RBI allowed IDFC and Bandhan Microfinance to get into commercial banking, that the apex bank would soon be coming out with on-tap bank licences.


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