Small finance bank licences next month: Raghuram Rajan

Mumbai: After granting approval to 11 entities for payments banks, RBI stated that it will announce small finance bank licences next month and allayed concerns  that these new entities can pose any threat to existing banks. RBI Governor Raghuram Rajan said that new payments banks would not pose any competitive threat to the existing banks and these new entities would rather serve as 'feeder' for the universal banks. 

The RBI had received 72 applications for small finance bank licences and 41 applications for payment bank licences.  Out of these, RBI yesterday granted 'in principle' approval for payments bank to 11 entities, including big names like  Reliance Industries, Aditya Birla Nuvo and Tech Mahindra, as  also Airtel and Vodafone.  Those having applied for small finance banks include  DHFL, IIFL Holdings, Lulu Forex, SKS Microfinance, UAE  Exchange and Ujjivan Financial.  Rajan said that RBI would announce small finance bank  licences next month.  The small finance banks can provide basic banking  services like accepting deposits and lending to the unbanked  sections such as small farmers, micro business enterprises,  micro and small industries and unorganised sector entities. 

The payments banks would be allowed to provide payments  and remittance services, but can not issue credit cards or  accept deposits beyond Rs 1 lakh. They can issue ATM and debit cards and also distribute mutual fund and insurance products.  Rajan said introduction of Payments Banks will  revolutionise banking, make it very exciting for customers and  existing lenders will have to improve service to retain  depositors. "I've no doubt banking will become very competitive and  universal banks have to provide full service to retain  customers," Rajan said during a chat with SBI Chairman  Arundhati Bhattacharya at the conference organised by the  country's largest lender.The introduction of Payments Banks will make banking  "exciting" for the customers, Rajan said.  Bhattacharya had asked whether payments banks could lead  to a "worry" and eat into the low-cost deposit base for banks  as the new banks have the option to accept deposits. 

Rajan said there is no threat to the banking system and the PBs will serve as a feeder for the existing banks.  The bank branch can become a centre of activity, helping with cash handling or do some completely new work.  "There is a lot of scope for everyone, not everybody will succeed but this is a revolution which can happen," he said.  He also thanked Nachiket Mor for the work he has done on the PBs and quipped that the new banks can also be called "Mor  Banks". 

Amongst those selected by the Reserve Bank include Reliance Industries, Airtel, Aditya Birla Group among others,  to start a Payments Bank. They have an 18-month window in  which they can submit their plans and get the final license. Rajan further said there is a pick up in the economy and the rural economy may also see an uptrend if monsoon  improves and sowing is good.  He also raised questions on the true strength of Chinese  economy and said India shouldn't be concerned if yuan  depreciation holds at current levels.  On the banking sector's bad debt problems, Rajan said the  NPAs covered under credit guarantee trust for medium and small  enterprises were high.  Besides, small companies were facing liquidity problem due to non-payment of bills, including those by the  government.  At the event, Bhattacharya said that the stress level in  mid-corporate banking segment was coming down