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Rajan says payment banks on the anvil

business Updated: Apr 01, 2014 20:57 IST
Raghuram Rajan

RBI governor Raghuram Rajan on Tuesday said after the current phase of new bank licences, the Reserve Bank will go ahead with the differentiated licencing process starting with payment banks and then proceed to have universal "on-tap" licencing.

"Quiet soon we hope to open the window, it may be that we may open the window first for differentiated banks licences, for example payment banks and then move to opening the on-tap for universal (licence) down the line," Rajan said at the customary post-policy press conference in New Delhi.

Rajan said ground work with regard to this is ready in the form of the discussion paper on 'Banking structure -the way forward' and RBI will have to build up on that.

Additionally, the learnings from the ongoing process of awarding bank licenses will also help in the diligence and vetting, he said.

"The point is, we should not be giving licence every 10 years...the hope is to make this an ongoing process," Rajan said, stressing the need to go beyond current practice.

Rajan said this structure of having a specialised bank devoted to payments or lending, will also help aspirants of a universal banking license to develop the capabilities to grow.

"This would allow people to develop banking capabilities even with a relative small size of operations, which will then allow them to apply for a full banking licence down the line," he said, choosing not to give a timeline by when he expects action on the front.

Since there are so many applicants and all of them cannot be given licence at a go, Rajan said, "The idea is that once we give this set of licences, there might be some applicants who might be suited for a different kind of licence. We want to tell them that the possibility is opening up and we will get more people there."

Explaining why and how differentiated banks can serve the purpose of banking, Rajan said, "A smaller playing field where people prove themselves and then can qualify for a bigger playing field. Show that you can do this kind of lending or that kind of payment, then build trust and then you can qualify for more.

"The point we want to make is that a bank licence in this country is a measure of trust and you have to earn that trust. We want to ensure that people who can build that trust get the opportunity to get those licences," he said.

The August RBI 2013 paper on banking structure first talked about the prospect of having licences on tap and differentiated banks, while the Nachiket Mor committee report on financial inclusion followed up on it by suggesting dedicated banks for payments and wholesale lending.

In the past few instances, it has been proved that licences are given once every decade. Kotak Mahindra Bank and Yes Bank were the last ones to set up shop in 2002-03 when the licences were issued.

The current phase of licencing process is stuck as the RBI has sought as a matter of caution sought the Election Commission's view on going ahead with issuing the licences.