Page 35 - Banking Finance February 2018

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Banks cannot offer credit on their own, this will require
partnerships with credit issuing banks.
3) Apart from amounts to be maintained as CRR, Payment
banks have to keep minimum 75 % of its "demand
deposit balances" in Statutory Liquidity Ratio(SLR),in
eligible Government securities/treasury bills with
maturity up to one year .As if the only possible solution
to ensure complete safety of the funds , all deposits and
float will actually be captured by the government. As it
is, the (SLR) imposed on these banks is a form of financial
repression and it is a challenge to thrive for them.

RBI's licensing guidelines for Small

Finance Banks (SFBs)
Challenges

1) The basic tenets for a successful payment bank will be Objectives:
"high quality low cost of delivery ", regular education / The objectives of setting up of small finance banks will be to
incentivize and encourage its customers to do cash-less further financial inclusion by (a) provision of savings vehicles,
transactions and a robust technological frame work and (ii) supply of credit to small business units, small and
.Essentially the cost of transactions, for a payment bank, marginal farmers, micro and small industries, and other
needs to be significantly lower of a traditional branch- unorganised sector entities, through high technology-low
based banking model. As payment bank can not lend cost operations.
and the major income is from government securities
they will keep with expected return of about only 7 %, Eligible promoters:
they have to charge its customers for the transactions
Resident individuals/professionals with 10 years of
that are executed through them. As low income experience in banking and finance; and companies and
households , who are main targets of these Payments
societies owned and controlled by residents will be eligible
Banks may not accept the charges. However ,
to set up small finance banks. Existing Non-Banking Finance
competition can dramatically reduce transaction costs Companies (NBFCs), Micro Finance Institutions (MFIs), and
over a period of time. This will be volume based
Local Area Banks (LABs) that are owned and controlled by
business. The Banks may have to invest extensively in
residents can also opt for conversion into small finance
technology so that all transactions go throw seamlessly
banks. Promoter/promoter groups should be 'fit and proper'
and at lower cost.
with a sound track record of professional experience or of
2) Given the reasonable quality of India's informal running their businesses for at least a period of five years in
payment solutions and preference for cash, Payments order to be eligible to promote small finance banks.
Banks may find it difficult to drive customers into digital
accounts by offering payment services alone. Though a Scope of activities :
few e-wallet players and online marketplace providers
1) The small finance bank shall primarily undertake basic
like Paytm & Foodpanda have made their entry into
banking activities of acceptance of deposits and lending
urban centres, these new banks may face greater
difficulties in breaking into the rural market. They will to unserved and underserved sections including small
business units, small and marginal farmers, micro and
need a conducive ecosystem and policy support. Large-
small industries and unorganised sector entities.
scale migration of Indian customers over to Payments
Bank accounts will require a more complete offering, 2) There will not be any restriction in the area of
including savings and credit services. Because Payments operations of small finance banks.

BANKING FINANCE | FEBRUARY | 2018 | 35

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