Banker Times - 28 Nov 2014 - RJ

Welcome to the banker times which gives you the gist on key happenings in the banking & financial industry

Payment banks /Small Finance Banks

RBI today issued the final guidelines for the setting up of the Payment banks and the small finance banks in the country.

As is implied a payment bank is the one which will be allowed to accept deposits , issues debit cards and make remittances(upto a specified limit). It will be allowed to distribute financial products (non risk sharing simple financial products) like insurance and mutual funds but will not be allowed to lend money.All deposits must be invested in govt securities.

A small finance bank will be a bank for all practical purposes , however these banks will focus on the underserved areas of the country.

Entities like a telecom company or a retail chain can tap into their existing client base and provide them with technology based financial services like payments and withdrawals.

The objective for allowing payment banks as declared by RBI "to further financial inclusion by providing (i) small savings accounts and (ii) payments/remittance services to migrant labour workforce, low income households, small businesses, other unorganised sector entities and other users."

The purpose here is to provide basic banking services by using the geographical spread of non banking entities like telecom companies , retail chains , NBFCs,  etc. With technology as the enabler. These entities will provide the deposit and payment services by obtaining a license for the payment banks. The business entities are more interested in the stickiness  of  customer this facility introduces. Especially telecom such a facility may in fact reduce the churn among the operators which in itself would be big gain. This may also lead to all sorts of JV s etc between the entities and the banks.

However it would be interesting to see how things unfold. Oft the biggest of the changes are unexpected and unnoticed. This particular change appears to be one such which will create a revolution of sorts in the financial services industry.

With regards to small banks individuals, societies, NBFCs etc are allowed to apply for setting up of small banks. the objective here is to take banking to the unbanked areas of the country. Considering some of the NBFCs like Muthoot have more branches than many banks it will be interesting to see whether these NBFCs take the plunge. However considering the geographical restriction on the operations in the initial years , the NBFCs may not be much enthused about it.

 
Source : Money control and http://rbi.org.in/scripts/BS_PressReleaseDisplay.aspx?prid=32615

RBI Allows Banks To Lend Money Against Infra Bonds

Investing in infrastructure bonds has become even more lucrative now. The Reserve Bank of India (RBI) has said that now banks can give loans up to Rs 10 lakh per borrower against investment in long-term infrastructure bonds.

One must also note, that banks are not permitted to lend against bonds issued by other banks

Source : RBI & Business Insider