A day after announcing the approval to 11 companies for payment banks, the RBI Governor Raghuram Rajan on Thursday declared that information regarding the issue of small finance bank licenses would be revealed next month. Rajan clarified that such initiatives wouldn’t act as a competitive impediment in the banking sector.
Seventy-two companies, including DHFL, IIFL Holdings, Lulu Forex, SKS Microfinance, UAE Exchange and Ujjivan Financial, have applied for the approval of small finance bank. During a conference organized by State Bank of India, Rajan told a leading tabloid, “I’ve no doubt banking will become very competitive and universal banks have to provide full service to retain customers.”
What are small finance bank and payment banks?
Analogous to commercial lenders, small finance bank will perform all activities that a bank does. It will accept deposits and provide credit to small and marginal farmers, small business units and industries, and other unorganized business companies. There will be no geographical restrictions in the operation of small finance bank.
On Wednesday, ‘in principle’ approval was granted to 11 companies for payment banks, out of 41 applications.
With a motive to make banks accessible to every person, the concept of payment banks has been initiated. Payment banks will conduct routine transactions up to Rs 1 lakh and will have both current and savings account. Such services are intended to be made available in unbanked areas as well. However, such banks can only issue debit cards and ATM cards, but not credit cards.
During the discussion, Rajan also explained that the Indian economy is heading towards a real course and surge in demand from the rural areas will be beneficial for the Indian economic development. Hence, a good monsoon is what the Indian economy requires. Besides, conversing about the recent devaluation of the Chinese currency, Yuan, by the People’s Bank of China by nearly two per cent, Rajan clarified that there had been a weak demand worldwide and Yuan’s depreciation has impacted all currencies.