The Reserve Bank of India on Tuesday issued a Small Finance Bank licence to the consortium of Centrum Financial Services and BharatPe. The new entity has been incorporated as ‘Unity Small Finance Bank’ and Centrum’s MSME and microfinance businesses shall be merged into it.
“A new bank license has been issued after a gap of nearly 6 years, and we thank the RBI for the confidence shown in the abilities of Centrum and BharatPe,” Centrum Capital said in a regulatory filing on Tuesday.
A small finance bank license is crucial to payments banks. The small finance bank, unlike payments banks, can offer micro-loans and issue credit cards to its customers along with the ability to accept deposits of over Rs 2 lakh.
In short, it is a way for payments banks to explore an actual business model, based on lending, where they can start making money.
The current norms for payments banks caps deposits at Rs 2 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.
The RBI had in March this year set up a committee to evaluate applications for universal and small finance banks. This had come after a working group constituted by the RBI last November had recommended that payments banks can apply to convert into small financial banks after three years of operations.
Due to the stringent norms around payments banks, a number of them 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 bank. India Post Payments Bank is also a scheduled payments bank. However, this doesn’t allow Fino to carry out lending activities.