The author has posted comments on this articleMayur Shetty, TNN | Nov 28, 2014, 01.10AM IST

Issuing the guidelines for new entities, the Reserve Bank of India on Monday said it will accept applications for both types of new banks up to January 16.

Among the finance companies, Muthoot Finance, which already has a presence in several unbanked areas due to its gold loan business, said it is interested in floating a small finance bank. Shriram Capital, which has the expertise in running low-cost operations, has expressed interest too. Oxigen Services India and ItzCash - both pre-paid instrument issuers - said they are keen on a payment bank licence. Telecom companies such as Vodafone, Idea and Airtel may also seek a payment bank licence as the RBI has done away with the requirement for a diversified ownership structure. However, a minimum of 26% shareholding has to be with Indians.

The objective of the small finance bank appears to be aimed at having more regulated entities in the area of microfinance and furthering financial inclusion while the payments banks are targeted at providing modern transaction services and savings facilities to the unbanked. The biggest gainers from these regulations would be the telecom companies and issuers of pre-paid instruments, who have been straining to have a bigger slice of the financial services pie. Mobile companies like Vodafone and Airtel had already made large investments to provide remittance and banking services but were stymied by RBI restrictions, which forced them to tie up with banks. Public sector entities like IndiaPost too will have an opportunity to leverage their network. The Cellular Operators Association of India had earlier represented to the RBI seeking removal of the diversified shareholding norms in its draft guidelines for payment banks.

Besides the restriction on size and focus on small customers, what differentiates these niche banks are the low-entry barriers. Not only are they open to a wider set of aspirants, the required capital of Rs 100 crore is one-fifth of what is required for full-service universal banks. While this is an opportunity for investors, it is unlikely that they will find the next HDFC Bank or Axis Bank, which after their launch in the late '90s have achieved Rs 1 lakh-crore market capitalization. The norms make it clear that the focus will be on achieving financial inclusion by catering to the unbanked. RBI governor Raghuram Rajan has also made it clear that there is no room for super profits by warning investors that they should not look for a fortune at the bottom of the pyramid.

According to Rishi Gupta, COO & ED, FINO PayTech, the new guidelines are more favorable than the draft version. The latest norms clarify that a payments bank can distribute third-party products, send and receive remittances from multiple banks and international remittance companies and also function as business correspondents of another bank.

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RBI eases norms for niche banks

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