Ray of hope for Payments Banks: RBI may allow them to hold small finance bank licenses

In what could prove as a game-changing step for struggling payment banks (PB), the Reserve Bank of India (RBI) is planning to offer new licensing norms to set up small finance banks. 

The central bank will allow payment banks to apply for fresh licenses.

The new licensing norms are expected soon, and PB will be able to apply for the same, said Moneycontrol report quoting sources close to the development.

One of the major advantages of small finance bank license holders would be that they would not have to face deposit and lending limitations.

They can freely serve deposits and lending services to underserves and unorganised sections.

The move, if implemented, will give a new lease of life to payment banks, which are hampered by many limitations imposed by the banking regulator. 

Entrackr has sent detailed queries to RBI in this regard. We will update the post st it responds.

At present, PBs are capped with Rs 1 lakh deposit amount and cannot offer a loan. Moreover, payments banks (PBs) are allowed to invest only in government securities. The limitation keeps smaller enterprises away from payments bank business.

After the closure of Aditya Birla and Vodafone m-Pesa Payments Banks, India Post Payments Bank (IPPB) last month announced pivots in its business model to Small Financial Bank (SFB).

Though, IPPB did not clarify on staying with PB license. In our last report, we had pointed out that the IPPB’s move may lead to an alternate way. 

And indeed, it appears now. 

It will undoubtedly offer five out of 11 operational PBs an option. 

Meanwhile, RBI reportedly would like 75% lending allowance by small financing banks in priority sectors such as agriculture, low-income-earners and SMEs. It also wants small financing banks to ensure that half of their loan portfolio should advance up to Rs 25 lakh.

About ten firms have already been given licenses to start small finance banks.