Small & Payment Banks: Future of Local Banking
By Advocate Aashish Srivastava / 2017-05-25
Finance Minister Arun Jaitley in his budget speech dated July 2014 had said that RBI will create a framework for licensing Payment Banks / Small Banks and other differentiated banks. These payment banks and Small Banks are expected to meet credit and remittance needs of small businesses, unorganized sector, low income households, farmers and migrant workforce.

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The Reserve Bank of India grants two kinds of licenses – Universal Bank License and Differentiated Bank License. Universal Banks as the name suggests cover inter alia all the Commercial Banks like HDFC, Axis Bank, ICICI etc. On the contrary Differentiated Banks deal in a niche or specific demographic segments of the society.

Small Finance Banks and Payment Banks are examples of Differentiated banks that have recently got established into the banking regime of India. RBI had granted in-principle approvals to 11 entities for setting up payment banks (PBs) in August 2015 and 10 for Small Finance Bank (SFB) in September 2015. These banking models are based on High Technology- Low-Cost Operations.

What are Small Finance Banks

SFBs are the banks that focus and serve the needs of a certain demographic segment of the population. (Provide for the requirements of a curated or a tailor-made section of society in terms of banking requirements.)

The objective of SFBs is to further financial inclusion of generally what is considered to be the mid and lower strata of banking consumers whether personal users or businesses. SFBs are more like traditional banks where they can sell forex to customers, sell mutual funds, make plans and sell insurance and pensions or alternatively, SFBs can also later convert into a full-fledged bank.

Finance Minister Arun Jaitley in his budget speech dated July 2014 had said that RBI will create a framework for licensing Payment Banks / Small Banks and other differentiated banks. These payment banks and Small Banks are expected to meet credit and remittance needs of small businesses, unorganized sector, low income households, farmers and migrant workforce.

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Get connected to the Best Lawyers and Chartered Accountants Near You!


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