Banking Revolution mode: RBI issues 10 small banking licenses

The Reserve Bank of India (RBI) on September 16, 2015 permitted licences to 10 applicants out of a total 72 applications to set up small finances banks. The selected applicants are Au Financiers (Jaipur), Capital Local Area Bank (Jalandhar), Disha Microfin (Ahmedabad), Equitas Holdings (Chennai), ESAF Microfinance and Investments (Chennai), Janalakshmi Financial Services (Bengaluru), RGVN (Northeast) Microfinance (Guwahati), Suryoday Micro Finance (Navi Mumbai), Ujjivan Financial Services (Bengaluru) and Utkarsh Micro Finance (Varanasi).

The small finance bank will primarily undertake basic banking activities of acceptance of deposits and lending to unserved and underserved sections including small business units, small and marginal farmers, micro and small industries and unorganised sector entities.

The entities which have got licenses must follow the guidelines set by RBI. The promoter must contribute minimum 40 per cent equity capital and should be brought down to 30 per cent in 10 years. The minimum paid-up capital would be Rs 100 crore. The capital adequacy ratio should be 15 per cent of risk weighted assets, Tier-I should be 7.5 per cent. The foreign shareholding capped at 74 per cent of paid capital while FPIs cannot hold more than 24 per cent.

The small banking firms will be able to do certain set of actions such as they can take small deposits and disburse loans and distribute mutual funds, insurance products and other simple third-party financial products. They must lend 75 per cent of their total adjusted net bank credit to priority sector. The maximum loan size would be 10 per cent of capital funds to single borrower, 15 per cent to a group and minimum 50 per cent of loans should be up to 25 lakhs.

Meanwhile, the small banking firms can not lend to big corporates and groups and cannot open branches without prior RBI approval for first five years. It cannot set up subsidiaries to undertake non-banking financial services activities. It also cannot be a business correspondent of any bank.

The big names among the aplicants for the samll banking license were disappointed after the annoucement of RBI. In early trades Dewan Housing Fiannce Corporation declined by 5.37 per cent and is trading at Rs 222.15. SKS Microfinance dropped almost 17 per cent and is trading at Rs 393.65 while IIFL holdings edged 0.67 per cent lower in trade.

By giving small banking license and payment banks, RBI sets its biggest stage of revolutionary phase since the nationalisation of banks in 1969. In the month of August RBI issued 11 payment bank licenses. IDFC and Bandhan Microfinance were granted licences earlier this year. Bandhan has already started banking operations while IDFC is going to start its banking operations from October 1, 2015.