RBI sets up external committee to evaluate applications for universal, small finance banks

India’s central bank on Monday announced the members of a committee that will evaluate applications for universal and small finance banks. Shyamala Gopinath, former deputy governor of the Reserve Bank of India or RBI will be the chairperson of the committee.

The other members of the ‘Standing External Advisory Committee’ include Revathy Iyer, the director of the central board of the RBI; B Mahapatra, chairman of National Payments Corporation of India; TN Manoharan, former chairman of Canara Bank; and Hemant G Contractor, former MD of SBI and former chairman of the Pension Fund Regulatory and Development Authority. 

This development is likely to have an impact on the fate of payments banks in the country, many of whom have been looking to convert into a small finance bank. 

Last November, a working group constituted by the RBI had recommended that payments banks can apply to convert into small financial banks after three years of operations. 

This was less than the five-year period prescribed in RBI’s guidelines for on-tap licensing of small financial banks, as per guidelines released in December 2019. 

The current norms for payments banks caps deposits at Rs 1 lakh per customer and prohibits them from lending. Converting to a small finance bank will allow them to start lending, possibly increasing their profitability. As of now, payments banks can only offer users a savings account and a remittance service, among other things.  

As a result of these norms, a number of payments banks in the country have buckled and shut shop. In 2015, the RBI had given its nod to 11 payments banks out of which five have already shut. Airtel Payments Bank, India Post Payments Bank, Fino Payments Bank, Jio Payments Bank, Paytm Payments Bank and NSDL Payments Bank are the remaining payments banks right now. 

Even out of these six remaining payments banks, Fino Payments Bank was, in February, added to the RBI’s Second Schedule making it a scheduled payments bank and allowing it to carry out lending activities. India Post Payments Bank is also a scheduled payments bank.