NRIs can set up small, payment banks

But for this, the NRIs will have to come back to India permanently

The Reserve Bank of India has extended the deadline for submitting applications for small finance banks and payment banks to February 2 against the earlier January 16.

The central bank also issued detailed clarifications on the guidelines for these two types of banks based on questions received from prospective applicants.

RBI said non-resident Indians can apply for payment and small finance banks provided they ‘return (to India) for good’.

This means individuals like Vikram Pandit, former Citibank chief, can be a promoter only if he comes back to the country permanently.

Otherwise, he has to remain just a minority shareholder. 

Pandit, according to media reports, was planning to set up a payment or a small bank in association with JM Group.

However, payment banks are barred from taking deposits from NRIs.

In-bound remittances into accounts maintained by residents with a payment bank will be treated as deposits.

According to the regulator, there are no restrictions on payment and small banks from sharing the infrastructure of the parent promoter or promoter group entities, provided there is an agreement to do so at an arm's length and suitable firewalls are built in, customer confidentiality is maintained and risk mitigation measures are put in place.

The regulator has also allowed a promoter to set up a small finance bank as well as a payment bank, provided the non-operative financial holding company is the same.

“The guidelines indicate that if a promoter, setting up a small finance bank, desires to set up a payment bank, it should set up both types of banks under a NOFHC structure.

“Otherwise, there is no requirement for the small finance banks to have holding company structure,” said RBI.

RBI has received 176 and 144 queries from individuals and organisations relating to small finance banks and payment banks, respectively, till December 15.

For small finance bank licences, RBI will give preference to those applicants who set up the bank in a cluster of under-banked states and districts, such as in the North-East, East and Central regions of the country.

“Other forms of presence such as satellite offices and mobile branches are not considered as full-fledged branches under the requirement to have 25 per cent branches in the unbanked rural centres,” said RBI.

The regulator also said there is no such stipulation regarding an ideal number of branches a small finance bank shall have to be eligible for the license.

There is also no cap on the number of licences proposed to be issued for small finance banks and payment banks.

At the time of making applications for payment banks and small finance banks, the promoters or promoter group will have to furnish a plan and methodology to comply with all the requirements of the guidelines within 18 months from the date of in-principle approval or as on the date of commencement of operations, whichever is earlier.

BANKABLE

• Payments bank’s primary focus has to be domestic payments
• Independent KYC checks of customers by payments bank promoted by telecom operator
• Payment banks can offer locker and vault services
• Payments bank can be business correspondent (BC) for as many commercial banks
• Promoter group can work as BC of payment bank on arms length basis