Rajan rules out guidelines on wholesale banks

Non-banking finance companies and other entities wanting to venture into the wholesale banking space received a set back, when RBI Governor Raghuram Rajan said there was no special need for such banks.

The Raghuram Rajan-appointed committee on financial inclusion, headed by Nachiket Mor, had recommended setting up of special types of banks — the wholesale banks — to meet the funding needs of certain section of corporates (like infrastructure companies).

While the RBI said that it would come out with final guidelines for small banks and payments banks by end-November, , Rajan, on Tuesday, ruled out the possibility of the central bank coming out with any guidelines for wholesale banks.

“Given the structures we have proposed…today with a regular banking licence, you can do wholesale banking. The idea (of wholesale banks) was to raise large amount of funds, long-term funds and not be subject to obligations that regular banks have, because you are dealing with different sets of clients. Today, with our long-term bonds, you can do infrastructure finance, you can do low-cost housing,” Rajan added.

The RBI Governor also said that the central bank will move quickly on issuing small and payments bank licences. The idea for payments bank, Rajan said, is to reach every part of the country in a low-cost way so that we can do basic deposits and also do remittances.

“With the small finance bank, the idea is to get such banks to focus on small customers. They can provide an environment where small and medium enterprises and small farmers might feel comfortable coming in,” he said.

He also said the small banks and payments banks will be subject to a higher degree of regulation during the initial period. “Obviously, we will be careful. We will up the quality and quantity of regulations that initially these new entities are subject to so that we understand the risk and then as time goes along we will allow more entrants,” he said. Rajan further added, “We have got all the creatures to populate this financial zoo and now we have to unleash them and see how the vibrancy emerges.” However, he did not specify a timeline as to when the central bank will open the on-tap licencing window for new set of universal banks.

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