Payments Banks May Apply For Small Finance Bank Licenses After Five Years Of Operations, States Reserve Bank Of India

The Reserve Bank of India (RBI) has stated in its latest guidelines on on-tap licensing for Small Finance Banks (SFBs) that payments banks willing to convert themselves into SFBs may apply for such a license after five years of operations.

According to the RBI notification, the minimum capital to set up a small finance bank has been mandated at Rs 200 crore.

The RBI has also stated that primary urban co-operative banks (UCBs), which wish to become small finance banks, the initial requirement of net worth will be Rs 100 crore, which would have to be increased to Rs 200 crore within five years from the date of commencement of business.

Promoters of payments banks are eligible to set up small finance banks, provided both banks come under the non-operating financial holding company (NOFHC) structure, according to the latest RBI guidelines.

SFBs offer basic banking services, such as accepting deposits and lending to un-served and underserved sections, including small businesses, small and marginal farmers, micro and small industries, and the unorganized sector.

Incidentally, until now rules did not allow payments banks to lend and deposits are capped at Rs 1 lakh per customer.

However, if payments banks get the licenses to become small finance banks, this would give them access to more deposits and boost their profitability, which is at present under pressure.

Payment banks like Paytm, IndiaPost and Fino have expressed their interest in converting themselves into small finance banks since they find their present model unviable. Microfinance lenders like Satin Creditcare Network Ltd are also expected to apply for small finance bank licenses.