The Reserve Bank of India on Thursday issued separate operating guidelines for payments banks and small finance banks in view of their differentiated nature of business and focus on financial inclusion. The RBI has granted in-principle approvals to 11 payments banks (August 2015) and 10 small finance bank (September 2015)

Given the financial inclusion focus of these banks, the minimum capital requirement of 15 per cent will be suitably calibrated, the RBI said.

Small finance banks The RBI said small finance banks will be allowed exemption from the existing regulatory ceiling on inter-bank borrowings till the existing loans mature or up to three years, whichever is earlier. Afterwards, it will be on par with scheduled commercial banks.

The exemption is only applicable to legacy borrowings migrated to the opening balance sheet on the day of commencement of operations. The small finance banks will be permitted to participate in the securitisation market only as originators and providers of associated credit enhancements and liquidity support. They will be encouraged to lend to self-help groups.

Payments banks The central bank said it will have no objection to payments banks making arrangements with other scheduled commercial bank / small finance bank, whereby amounts in excess of the prescribed limit of ₹1 lakh can be swept into an account opened for the customer with the latter. This arrangement should be activated with the prior written consent of the customer.

Annual plans for opening of physical access points by the payments bank for the initial five years would need RBI’s prior approval.

The first of such plans should be submitted to the RBI before commencement of business.

After the initial stabilisation period of five years, and after a review, the RBI may liberalise the requirement of prior approval.

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