{"id":321,"date":"2014-07-22T10:40:00","date_gmt":"2014-07-22T10:40:00","guid":{"rendered":"http:\/\/myplanning.in\/car-insurance\/all-about-small-banks-and-payment-banks\/"},"modified":"2026-03-16T07:19:54","modified_gmt":"2026-03-16T07:19:54","slug":"all-about-small-banks-and-payment-banks","status":"publish","type":"post","link":"https:\/\/myplanning.in\/fr\/personal-finance\/all-about-small-banks-and-payment-banks\/","title":{"rendered":"All about Small Banks and Payment Banks"},"content":{"rendered":"<div dir=\"ltr\" style=\"text-align: left;\">\n<div style=\"border-bottom: solid #4F81BD 1.0pt; border: none; mso-border-bottom-themecolor: accent1; mso-element: para-border-div; padding: 0cm 0cm 2.0pt 0cm;\">\n<div>\n<div style=\"text-align: justify;\"><span style=\"font-family: Georgia, serif; font-size: 11pt; line-height: 115%;\">Recently RBI drafts norms for setting up small banks and payment banks. The main objective of this banks are to push financial inclusion in rural and urban areas and helps to small businesses, unorganized sector, low income households and for farmers.<span>&nbsp;<\/span><span style=\"background: white;\">In the regulation, the guidelines with the conclusion that the move is positive for micro finance and telecom companies but it is unlikely to attract large NBFCs. You can Check below all details about Small and Payment Banks.<\/span><\/span><\/div>\n<div style=\"text-align: left;\"><\/div>\n<\/div>\n<\/div>\n<div style=\"clear: both; text-align: center;\"><\/div>\n<div style=\"text-align: justify;\"><span style=\"background: white; font-family: Calibri, sans-serif; font-size: 11pt;\"><\/span><\/div>\n<p><a name='more'><\/a><\/p>\n<div style=\"clear: both; text-align: center;\"><\/div>\n<div style=\"clear: both; text-align: center;\"><a href=\"http:\/\/myplanning.in\/wp-content\/uploads\/2014\/07\/5.jpg\" style=\"margin-left: 1em; margin-right: 1em;\"><img decoding=\"async\" alt=\"Payment banks\" border=\"0\" src=\"http:\/\/myplanning.in\/wp-content\/uploads\/2014\/07\/5.jpg\" title=\"Small banks\" \/><\/a><\/div>\n<div style=\"clear: both; text-align: center;\"><\/div>\n<div style=\"clear: both; text-align: justify;\"><b><span style=\"font-family: Calibri, sans-serif; font-size: 11pt;\"><br \/><\/span><\/b><\/div>\n<div style=\"clear: both; text-align: justify;\"><b><span style=\"font-family: Georgia, Times New Roman, serif; font-size: 11pt;\">Following are some of the conditions which are common to both the banks as collated by <a href=\"http:\/\/www.business-standard.com\/article\/finance\/all-you-want-to-know-about-small-banks-and-payments-banks-114072100489_1.html\" target=\"_blank\" rel=\"noopener noreferrer\">Motilal Oswal.<\/a><\/span><\/b><\/div>\n<div style=\"clear: both; text-align: justify;\"><b><span style=\"font-family: Georgia, Times New Roman, serif; font-size: 11pt;\"><br \/><\/span><\/b><\/div>\n<div style=\"clear: both; text-align: justify;\"><\/div>\n<ul>\n<li style=\"text-align: justify;\"><span style=\"font-family: Georgia, Times New Roman, serif; font-size: 15px;\">The Minimum capital requirement would be Rs 100 crore<\/span><\/li>\n<li style=\"text-align: justify;\"><span style=\"font-family: Georgia, Times New Roman, serif; font-size: 15px;\">Promoter&#8217;s initial minimum contribution will be at least 40% with a five-year lock-in period and excess shareholding should be brought down to 30% bye the end of 10 year and to 26% within 12 years from date of commencement of business of the bank<\/span><\/li>\n<li style=\"text-align: justify;\"><span style=\"font-family: Georgia, Times New Roman, serif; font-size: 15px;\">Foreign shareholding in these banks will be as per current FDI policy<\/span><\/li>\n<li><span style=\"font-family: Georgia, Times New Roman, serif; font-size: 15px;\">\n<div style=\"background: white; line-height: 16.5pt; margin-bottom: 0.0001pt; text-align: justify;\">Voting rights to be line with the existing guideline for private banks<\/div>\n<p><\/span><\/li>\n<li><span style=\"background-color: white; font-family: Georgia, 'Times New Roman', serif; font-size: 15px; line-height: 22px; text-align: justify;\">Entities other than promoters will not be permitted to have shareholding in excess of 10 per cent<\/span><\/li>\n<li>\n<div style=\"background: white; line-height: 16.5pt; margin-bottom: 0.0001pt; text-align: justify;\"><span style=\"font-size: 11pt;\"><span style=\"font-family: Georgia, Times New Roman, serif; font-size: 11pt;\">The bank should comply with the corporate governance guidelines, including \u2018fit and proper\u2019 criteria for Directors as issued by RBI<\/span><\/span><\/div>\n<\/li>\n<li>\n<div style=\"background: white; line-height: 16.5pt; margin-bottom: 0.0001pt; text-align: justify;\"><span style=\"font-size: 11pt;\"><span style=\"font-size: 11pt;\"><span style=\"font-family: Georgia, Times New Roman, serif; font-size: 11pt;\">Operations of the bank should be fully networked and technology driven from the beginning<\/span><\/span><\/span><\/div>\n<\/li>\n<\/ul>\n<p><span style=\"font-family: Georgia, Times New Roman, serif;\"><br \/><\/span><\/p>\n<div style=\"clear: both; text-align: justify;\"><b><span style=\"font-family: Georgia, Times New Roman, serif; font-size: 11pt;\">Small Banks<\/span><\/b><\/div>\n<div style=\"clear: both; text-align: justify;\"><b><span style=\"font-family: Georgia, Times New Roman, serif; font-size: 11pt;\"><br \/><\/span><\/b><\/div>\n<div style=\"background: white; line-height: 16.5pt; margin-bottom: .0001pt; margin-bottom: 0cm;\"><\/div>\n<ul style=\"text-align: left;\">\n<li style=\"text-align: justify;\"><span style=\"font-family: Georgia, Times New Roman, serif;\"><span style=\"line-height: 16.5pt;\">&nbsp;<\/span><span style=\"font-size: 11pt;\">The purpose of the small banks will be to provide a whole suite of basic banking products such as deposits and supply of credit, but in a limited area of operation<\/span><\/span><\/li>\n<li style=\"text-align: justify;\"><span style=\"font-size: 11pt;\"><span style=\"font-family: Georgia, Times New Roman, serif; font-size: 11pt;\">The objective for these Small Banks is to increase financial inclusion by provision of savings vehicles to under-served and un-served sections of the population, supply of credit to small farmers, micro and small industries, and other unorganized sector entities through high technology-low cost operations<\/span><\/span><\/li>\n<li style=\"text-align: justify;\"><span style=\"font-family: Georgia, Times New Roman, serif;\"><span style=\"font-size: 11pt;\"><span style=\"font-size: 11pt;\"><span style=\"font-size: 11pt;\">Resident individuals with 10 years of experience in banking and finance, companies and Societies will be eligible as promoters to set up small banks.&nbsp;<\/span><\/span><\/span><span style=\"font-size: 11pt;\">NFBCs, micro finance institutions (MFIs), and Local Area Banks (LABs) can convert their operations into those of a small bank&nbsp;<\/span><\/span><\/li>\n<li style=\"text-align: justify;\"><span style=\"font-size: 11pt;\"><span style=\"font-size: 11pt;\"><span style=\"font-size: 11pt;\"><span style=\"font-family: Georgia, Times New Roman, serif; font-size: 11pt;\">Branch expansion: For the initial three years, prior approval will be required<\/span><\/span><\/span><\/span><\/li>\n<li style=\"text-align: justify;\"><span style=\"font-size: 11pt;\"><span style=\"font-size: 11pt;\"><span style=\"font-size: 11pt;\"><span style=\"font-size: 11pt;\"><span style=\"font-family: Georgia, Times New Roman, serif; font-size: 11pt;\">The area of operations would normally be restricted to contiguous districts in a homogenous cluster of states of union territories so that the Small Bank has a \u2018local feel\u2019 and culture. However, if necessary, it would be allowed to expand its area of operations beyond contiguous districts in one or more states with reasonable geographical proximity<\/span><\/span><\/span><\/span><\/span><\/li>\n<li style=\"text-align: justify;\"><span style=\"font-size: 11pt;\"><span style=\"font-size: 11pt;\"><span style=\"font-size: 11pt;\"><span style=\"font-size: 11pt;\"><span style=\"font-size: 11pt;\"><span style=\"font-family: Georgia, Times New Roman, serif; font-size: 11pt;\">The bank shall primarily undertake basic banking activities of accepting deposits and lending to small farmers, small businesses, micro and small industries, and unorganized sector entities. It cannot set up subsidiaries to undertake non-banking financial services activities. After the initial stabilization period of five years, and after a review, the RBI may liberalize the scope of activities for Small Banks<\/span><\/span><\/span><\/span><\/span><\/span><\/li>\n<li style=\"text-align: justify;\"><span style=\"font-size: 11pt;\"><span style=\"font-size: 11pt;\"><span style=\"font-size: 11pt;\"><span style=\"font-size: 11pt;\"><span style=\"font-size: 11pt;\"><span style=\"font-size: 11pt;\"><span style=\"font-family: Georgia, Times New Roman, serif; font-size: 11pt;\">The promoters\u2019 other financial and non-financial services activities, if any, should be distinctly ring-fenced and not co-mingled with banking business<\/span><\/span><\/span><\/span><\/span><\/span><\/span><\/li>\n<li style=\"text-align: justify;\"><span style=\"font-size: 11pt;\"><span style=\"font-size: 11pt;\"><span style=\"font-size: 11pt;\"><span style=\"font-size: 11pt;\"><span style=\"font-size: 11pt;\"><span style=\"font-size: 11pt;\"><span style=\"font-size: 11pt;\"><span style=\"font-family: Georgia, Times New Roman, serif; font-size: 11pt;\">A robust risk management framework is required and the banks would be subject to all prudential norms and RBI regulations that apply to existing commercial banks, including maintenance of&nbsp;<a href=\"http:\/\/www.business-standard.com\/search?type=news&amp;q=Crr\" target=\"_blank\" rel=\"noopener noreferrer\"><span style=\"color: blue; text-decoration: none; text-underline: none;\">CRR<\/span><\/a> and&nbsp;<span style=\"color: blue; text-decoration: none; text-underline: none;\"><a href=\"http:\/\/www.business-standard.com\/search?type=news&amp;q=Slr\" target=\"_blank\" rel=\"noopener noreferrer\">SLR<\/a><\/span><\/span><\/span><\/span><\/span><\/span><\/span><\/span><\/span><\/li>\n<li style=\"text-align: justify;\"><span style=\"font-size: 11pt;\"><span style=\"font-size: 11pt;\"><span style=\"font-size: 11pt;\"><span style=\"font-size: 11pt;\"><span style=\"font-size: 11pt;\"><span style=\"font-size: 11pt;\"><span style=\"font-size: 11pt;\"><span style=\"font-size: 11pt;\"><span style=\"font-family: Georgia, Times New Roman, serif; font-size: 11pt;\">In view of concentration of area of operations, the Small Bank would need a diversified portfolio of loans, spread over it area of operations<\/span><\/span><\/span><\/span><\/span><\/span><\/span><\/span><\/span><\/li>\n<li style=\"text-align: justify;\"><span style=\"font-size: 11pt;\"><span style=\"font-size: 11pt;\"><span style=\"font-size: 11pt;\"><span style=\"font-size: 11pt;\"><span style=\"font-size: 11pt;\"><span style=\"font-size: 11pt;\"><span style=\"font-size: 11pt;\"><span style=\"font-size: 11pt;\"><span style=\"font-size: 11pt;\"><span style=\"font-family: Georgia, Times New Roman, serif; font-size: 11pt;\">The maximum loan size and investment limit exposure to single\/group borrowers\/issuers would be restricted to 15 per cent of capital funds<\/span><\/span><\/span><\/span><\/span><\/span><\/span><\/span><\/span><\/span><\/li>\n<li style=\"text-align: justify;\"><span style=\"font-size: 11pt;\"><span style=\"font-size: 11pt;\"><span style=\"font-size: 11pt;\"><span style=\"font-size: 11pt;\"><span style=\"font-size: 11pt;\"><span style=\"font-size: 11pt;\"><span style=\"font-size: 11pt;\"><span style=\"font-size: 11pt;\"><span style=\"font-size: 11pt;\"><span style=\"font-size: 11pt;\"><span style=\"font-family: Georgia, Times New Roman, serif; font-size: 11pt;\">Loans and advances of up to Rs 25 lakhs, primarily to micro enterprises, should constitute at least 50 per cent of the loan portfolio<\/span><\/span><\/span><\/span><\/span><\/span><\/span><\/span><\/span><\/span><\/span><\/li>\n<li style=\"text-align: justify;\"><span style=\"font-size: 11pt;\"><span style=\"font-size: 11pt;\"><span style=\"font-size: 11pt;\"><span style=\"font-size: 11pt;\"><span style=\"font-size: 11pt;\"><span style=\"font-size: 11pt;\"><span style=\"font-size: 11pt;\"><span style=\"font-size: 11pt;\"><span style=\"font-size: 11pt;\"><span style=\"font-size: 11pt;\"><span style=\"font-size: 11pt;\"><span style=\"font-family: Georgia, Times New Roman, serif; font-size: 11pt;\">For the first three years, 25 per cent of branches should be in un-banked rural areas<\/span><\/span><\/span><\/span><\/span><\/span><\/span><\/span><\/span><\/span><\/span><\/span><\/li>\n<\/ul>\n<div><b style=\"text-align: justify;\"><span style=\"font-family: Georgia, Times New Roman, serif; font-size: 11pt;\">Payment Banks<\/span><\/b><\/div>\n<div><b style=\"text-align: justify;\"><span style=\"font-family: Georgia, Times New Roman, serif; font-size: 11pt;\"><br \/><\/span><\/b><\/div>\n<div>\n<ul style=\"text-align: left;\">\n<li style=\"text-align: justify;\"><span style=\"font-size: 15px;\"><span style=\"font-family: Georgia, Times New Roman, serif; font-size: 11pt;\">Objective of payments banks is to increase financial inclusion by providing small savings accounts, payment\/remittance services to migrant labour, low income households, small businesses, other unorganised sector entities and other users by enabling high volume-low value transactions in deposits and payments\/remittance services in a secured technology-driven environment<\/span><\/span><\/li>\n<li style=\"text-align: justify;\"><span style=\"font-size: 15px;\"><span style=\"font-size: 11pt;\"><span style=\"font-family: Georgia, Times New Roman, serif; font-size: 11pt;\">Those who can promote a payments banks can be a non-bank PPIs, NBFCs, corporate\u2019s, mobile telephone companies, super market chains, real sector cooperatives companies and public sector entities. Even banks can take equity in Payments Banks<\/span><\/span><\/span><\/li>\n<li style=\"text-align: justify;\"><span style=\"font-size: 15px;\"><span style=\"font-size: 11pt;\"><span style=\"font-size: 11pt;\"><span style=\"font-family: Georgia, Times New Roman, serif; font-size: 11pt;\">Payments Banks can accept demand deposits (only current account and savings accounts). They would initially be restricted to holding a maximum balance of Rs 100,000 per customer. Based on performance, the RBI could enhance this limit<\/span><\/span><\/span><\/span><\/li>\n<li style=\"text-align: justify;\"><span style=\"font-size: 15px;\"><span style=\"font-size: 11pt;\"><span style=\"font-size: 11pt;\"><span style=\"font-size: 11pt;\"><span style=\"font-family: Georgia, Times New Roman, serif; font-size: 11pt;\">The banks can offer payments and remittance services, issuance of prepaid payment instruments, internet banking, functioning as business correspondent for other banks<\/span><\/span><\/span><\/span><\/span><\/li>\n<li style=\"text-align: justify;\"><span style=\"font-size: 15px;\"><span style=\"font-size: 11pt;\"><span style=\"font-size: 11pt;\"><span style=\"font-size: 11pt;\"><span style=\"font-size: 11pt;\"><span style=\"font-family: Georgia, Times New Roman, serif; font-size: 11pt;\">Payments Banks cannot set up subsidiaries to undertake&nbsp;<a href=\"http:\/\/www.business-standard.com\/search?type=news&amp;q=Nbfc\" target=\"_blank\" rel=\"noopener noreferrer\"><span style=\"color: blue; text-decoration: none; text-underline: none;\">NBFC<\/span><\/a>&nbsp;business<\/span><\/span><\/span><\/span><\/span><\/span><\/li>\n<li style=\"text-align: justify;\"><span style=\"font-size: 15px;\"><span style=\"font-size: 11pt;\"><span style=\"font-size: 11pt;\"><span style=\"font-size: 11pt;\"><span style=\"font-size: 11pt;\"><span style=\"font-size: 11pt;\"><span style=\"font-family: Georgia, Times New Roman, serif; font-size: 11pt;\">As in the case of Small Banks, other financial and non-financial services activities of the promoters should be ring-fenced<\/span><\/span><\/span><\/span><\/span><\/span><\/span><\/li>\n<li style=\"text-align: justify;\"><span style=\"font-size: 15px;\"><span style=\"font-size: 11pt;\"><span style=\"font-size: 11pt;\"><span style=\"font-size: 11pt;\"><span style=\"font-size: 11pt;\"><span style=\"font-size: 11pt;\"><span style=\"font-size: 11pt;\"><span style=\"font-family: Georgia, Times New Roman, serif; font-size: 11pt;\">The Payments Banks would be required to use the word \u2018Payments\u2019 in its name to differentiate it from other banks<\/span><\/span><\/span><\/span><\/span><\/span><\/span><\/span><\/li>\n<li style=\"text-align: justify;\"><span style=\"font-size: 15px;\"><span style=\"font-size: 11pt;\"><span style=\"font-size: 11pt;\"><span style=\"font-size: 11pt;\"><span style=\"font-size: 11pt;\"><span style=\"font-size: 11pt;\"><span style=\"font-size: 11pt;\"><span style=\"font-size: 11pt;\"><span style=\"font-family: Georgia, Times New Roman, serif; font-size: 11pt;\">No credit lending is allowed for Payments Banks<\/span><\/span><\/span><\/span><\/span><\/span><\/span><\/span><\/span><\/li>\n<li style=\"text-align: justify;\"><span style=\"font-size: 15px;\"><span style=\"font-size: 11pt;\"><span style=\"font-size: 11pt;\"><span style=\"font-size: 11pt;\"><span style=\"font-size: 11pt;\"><span style=\"font-size: 11pt;\"><span style=\"font-size: 11pt;\"><span style=\"font-size: 11pt;\"><span style=\"font-size: 11pt;\"><span style=\"font-family: Georgia, Times New Roman, serif; font-size: 11pt;\">The float funds can be parked only in less than one year G-Secs<\/span><\/span><\/span><\/span><\/span><\/span><\/span><\/span><\/span><\/span><\/li>\n<\/ul>\n<div style=\"text-align: justify;\"><span style=\"font-family: Calibri, sans-serif;\"><span style=\"font-size: 15px;\"><br \/><\/span><\/span><\/div>\n<\/div>\n<\/div>\n","protected":false},"excerpt":{"rendered":"<p>Recently RBI drafts norms for setting up small banks and payment banks. The main objective of this banks are to push financial inclusion in rural and urban areas and helps to small businesses, unorganized sector, low income households and for farmers.&nbsp;In the regulation, the guidelines with the conclusion that the move is positive for micro [&hellip;]<\/p>\n","protected":false},"author":1,"featured_media":365,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_jetpack_newsletter_access":"","_jetpack_dont_email_post_to_subs":false,"_jetpack_newsletter_tier_id":0,"_jetpack_memberships_contains_paywalled_content":false,"_jetpack_feature_clip_id":0,"_jetpack_memberships_contains_paid_content":false,"footnotes":"","jetpack_post_was_ever_published":false},"categories":[15],"tags":[],"class_list":["post-321","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-personal-finance"],"blocksy_meta":{"styles_descriptor":{"styles":{"desktop":"","tablet":"","mobile":""},"google_fonts":[],"version":6}},"aioseo_notices":[],"jetpack_featured_media_url":"","jetpack_sharing_enabled":true,"_links":{"self":[{"href":"https:\/\/myplanning.in\/fr\/wp-json\/wp\/v2\/posts\/321","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/myplanning.in\/fr\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/myplanning.in\/fr\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/myplanning.in\/fr\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/myplanning.in\/fr\/wp-json\/wp\/v2\/comments?post=321"}],"version-history":[{"count":1,"href":"https:\/\/myplanning.in\/fr\/wp-json\/wp\/v2\/posts\/321\/revisions"}],"predecessor-version":[{"id":1957,"href":"https:\/\/myplanning.in\/fr\/wp-json\/wp\/v2\/posts\/321\/revisions\/1957"}],"wp:attachment":[{"href":"https:\/\/myplanning.in\/fr\/wp-json\/wp\/v2\/media?parent=321"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/myplanning.in\/fr\/wp-json\/wp\/v2\/categories?post=321"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/myplanning.in\/fr\/wp-json\/wp\/v2\/tags?post=321"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}