Dawn of a new era: 11 payments banks allowed to start ops

The Reserve Bank of India (RBI) today opened up the country's banking sector by allowing business houses like Reliance Industries and Aditya Birla group to start payments banks -- an entity which will mainly involved in remittance services, will be allowed to accept deposits up to Rs 1 lakh but cannot lend and will only have to deploy funds in government paper and bank deposits.

This is first time in the history that differentiated licences for undertaking specific activities and the central bank is expected to come out with second set of such licences, that is, small finance banks - the process for which is in the final stages.

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Airtel and Reliance Industries, which were among the successful applicants, had tied with Kotak Mahindra Bank and State Bank of India, respectively for payments banks.

Department of Posts and Aditya Birla Nuvo, who were unsuccessful in the last year's universal bank licence process, met with success this time.

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Growing mobile wallet player Paytm and telecom major Vodafone were also among the successful candidates.

Sun Pharma promoter Dilip Sanghvi who applied in his name, It giant Tech Mahindra, payments technology provider Fine PayTech, financial services provider Cholamandalam Distribution Services, also secured payments bank licence.

These entities, which should have a initial capital of Rs 100 crore, will have to start operations within 18 months. The promoter's minimum initial contribution to equity capital has to be at least be 40 per cent for the first five years.

The move will go a long way in furthering financial inclusion - a stated objective of both the government and the central bank to bring more lives into formal banking channel.

The central bank also shredded its tag of being conservative while granting banking licence as it gave 11 licences in one go and promised that after gaining experience from the current exercise, licences will be offered 'on tap'. Time taken to give these licences was also cut down as the process was completed within an year as compared to four years taken to grant universal banking licences last year.

The 11 candidates were chosen from 41 applicants, after applying the fit and proper criteria and successful track record of conducting business for five years. An external advisory committee (EAC) headed by RBI board member Nachiket Mor scrutinised all the application and then send its recommendations.

"The recommendations of the EAC were an input to an Internal Screening Committee (ISC), consisting of the Governor and the four Deputy Governors. This Internal Screening Committee prepared a final list of recommendations for the Committee of the Central Board (CCB)," RBI said in a statement.

The CCB which met today, and approved the announced list of applicants.

"In arriving at the final list, the CCB noted that it would be difficult at this stage to forecast the most successful likely model in the emerging business of payments. The CCB further noted that payments banks cannot undertake lending, and therefore believed that the payments bank would not be subject to the same risks as a full service bank," RBI added.

Among the unsuccessful ones are the prepaid payment instrument (PPI) providers like One MobiKwik Systems and Oxigen Services who would be disappointed because the central bank in its final guidelines had said PPIs will be considered for licences.

But the central bank given a ray of hope for the unsuccessful candidates as it said they can qualify in future.

"Going forward, the Reserve Bank intends to use the learning from this licensing round to appropriately revise the Guidelines and move to giving licences more regularly, that is, virtually "on tap". The Reserve Bank believes that some of the entities who did not qualify in this round, could well be successful in future rounds," RBI added..
 

Source : Business Standard