Money & Banking

Small finance banks seek relaxation in RBI norms for branch opening

Surabhi Mumbai | Updated on February 18, 2020

Incumbent small finance banks (SFBs) have sought relaxation of norms from the Reserve Bank of India for opening new branches. This could bring them at par with the norms proposed for on-tap licensing for new SFBs.

At present, SFBs have to submit an annual branch expansion plan to the RBI, specifying details of the location of each branch to be opened in the initial five years after inception.

“We have to submit a specific Form 6 to the RBI as part of the annual plan, giving the location and other details. This has to be done in the first five years of operations,” said an industry player, adding that this provision has been watered down to three years in the on-tap licensing norms. “We have asked the RBI to allow a similar dispensation for existing players,” he said.

Financial inclusion

As part of their agenda of financial inclusion, SFBs — both the existing ones and the new ones that come up — are expected to open 25 per cent of their branches in unbanked rural areas.

The RBI had, in 2014, issued guidelines for SFBs’ expansion as one of the ways to facilitate access to bank credit and services in unbanked and under-banked regions.

Based on these norms, it granted in-principle approval to 10 applicants, which have since then established SFBs.

Pleased with the success of SFBs, the RBI, in its second bi-monthly monetary policy for 2019-20, announced that it would put out draft guidelines for on-tap licensing of such banks. The final guidelines, which came out last December, gave SFBs general permission to open banking outlets from the date of commencement of business.

Published on February 18, 2020

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