How 23 new banks will make an impact in India

RBI is planning to come up with 'on tap' licences which means there will not be any cut-off date for applying for the licences.

The niche banks - small finance and payments banks -have been set up to further the regulator's objective of deepening financial inclusion.

Since April 2014, the Reserve Bank of India (RBI) has granted 23 banking licences to new players - two were given universal banking licences (April 2, 2014), 11 were issued payments banks licences (August 19, 2015) and 10 were given licences for small finance banks (September 16, 2015).

The niche banks - small finance and payments banks -have been set up to further the regulator's objective of deepening financial inclusion. Going ahead, RBI is planning to come up with "on tap" licences which means there will not be any cut-off date for applying for the licences.

Headquarters of the new banks

UNIVERSAL BANKS

Mumbai - IDFC

Kolkata - Bandhan

PAYMENTS BANKS

Mumbai

Aditya Birla Nuvo

Fino PayTech

National Securities Depository

Reliance Industries

Dilip Shantilal Shanghvi

Tech Mahindra

Vodafone M-pesa

New Delhi

Airtel M Commerce

Department of Posts

Vijay Shekhar Sharma

Chennai

Cholamandalam Distribution

SMALL FINANCE BANKS

Mumbai

Au Financiers

Suryoday Micro Finance

Jalandhar

Capital Local Area Bank

Ahmedabad

Disha Microfin

Chennai

Equitas Holdings

Thrissur

ESAF Microfinance and Investments

Bengaluru

Ujjivan Financial Services

Janalakshmi Financial Services

Varanasi

Utkarsh Micro Finance

Guwahati

RGVN (North East) Microfinance

REGULATORY REQUIREMENTS

UNIVERSAL BANKS

Eligibility

Companies in the private and public sectors and non-banking financial companies (NBFCs) will be eligible to set up a bank through a wholly-owned non-operative financial holding company (NOFHC). These applicants need to meet the criteria set by RBI. The players will also need to have a sound and successful track record of 10 years

Capital requirement

The initial minimum paid-up voting equity capital for a bank needs to be at least Rs 500 crore (Rs 5 billion). The bank will need to be listed within three years of starting business

Scope of activity 

The bank can accept deposits and carry out lending activities without limitations in the area of operations.

Also, the banks will have to work towards achieving financial inclusion and 40 per cent of their lending should be towards the priority sector.

Promoter's contribution

The NOFHC and the bank will not have any exposure to the promoter group. The bank will not invest in equity / debt capital instruments of any financial entities held by the NOFHC

Foreign shareholding

The aggregate non-resident shareholding in the new bank will not exceed 49 per cent for the first five years, after which it will be according to the existing policy - 49 per cent under the automatic route and 74 per cent under the approval route

Other conditions

The bank's board should have a majority of independent directors. It needs to open at least 25 per cent of its branches in unbanked rural centres (population of up to 9,999, according to the latest census).

Also, banks promoted by groups having 40 per cent or more assets/income from non-financial business will require RBI's prior approval for raising paid-up voting equity capital beyond Rs 1000 crore or for every block of Rs 500 crore

PAYMENTS BANKS 

Eligibility

Prepaid payment Instrument issuers, individuals/professionals, NBFCs, corporate business correspondents, mobile telephone companies, super-market chains, real sector cooperatives that are owned and controlled by residents, and public sector entities are eligible to apply for payments bank licences.

The promoter should be able to meet the 'fit and proper' criteria with a sound track record of of five years

Capital requirements

The minimum paid-up equity capital for payments banks shall be Rs 100 crore

Scope of activity

Can accept deposits of up to Rs 1 lakh a customer and issue debit cards. It can also carry out payments and remittance services and is allowed to distribute insurance and mutual fund products.

Payments banks can also serve as a business correspondent of another bank.

Promoter's contribution

The promoter's minimum initial contribution to the paid-up equity capital should be at least 40 per cent for the first five years from the start of its business.

Foreign shareholding

The foreign shareholding in payments banks would be according to the foreign direct investment (FDI) policy for private sector banks - 49 per cent under the automatic route and 74 per cent under the approval route.

Other conditions

The operations of the bank should be fully networked and technology-driven from the beginning and it should also have a high powered customer grievances cell to handle complaints

SMALL FINANCE BANKS

Eligibility

Resident individuals/professionals with 10 years of experience in banking and finance, companies and societies owned and controlled by residents, existing NBFCs, microfinance institutions, and local area banks can apply for small finance bank licences.

All entities should be owned and controlled by Indian residents and should be able to meet the 'fit and proper' criteria stated by RBI

Capital requirements

The minimum paid-up equity capital required is Rs 100 crore.

Scope of activity

They will primarily undertake basic banking activities of accepting deposits and lending to unserved and underserved sections, including small business units, small and marginal farmers, micro and small industries and unorganised sector entities.

There will not be any restriction in the area of operations of small finance banks.

Promoter's contribution

The promoter's minimum initial contribution to the paid-up equity capital of small finance bank should be at least be 40 per cent and needs to be gradually brought down to 26 per cent within 12 years from the start of operations.

Foreign shareholding

Foreign shareholding in small finance banks would be according to the FDI policy for private sector banks- 49 per cent under the automatic route and 74 per cent under the approval route.

Other conditions

The small finance bank will be subject to all prudential norms and regulations of RBI, as applicable to existing commercial banks, including requirement of maintenance of cash reserve ratio and statutory liquidity ratio.

Apart from this, they will be required to extend 75 per cent of adjusted net bank credit to the priority sector. Also, at least 50 per cent of its loan portfolio should comprise loans and advances of up to Rs 25 lakh.