Small finance bank licences next month: Raghuram Rajan

RBI governor Raghuram Rajan on Thursday allayed concerns that small finance banks will pose any threat to existing banks adding that the central bank will make announcement about their licences in September.

RBI governor Raghuram Rajan on Thursday allayed concerns that small finance banks will pose any threat to existing banks adding that the central bank will make announcement about their licences in September.

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Rajan said that these new entities would rather serve as 'feeder' for the universal banks. The RBI had received 72 applications for small finance bank licences and 41 applications for payment bank licences. Out of these, RBI on Wednesday granted 'in principle' approval for payments bank to 11 entities, including big names like Reliance Industries, Aditya Birla Nuvo and Tech Mahindra, as also Airtel and Vodafone.

Those having applied for small finance banks include DHFL, IIFL Holdings, Lulu Forex, SKS Microfinance, UAE Exchange and Ujjivan Financial. Rajan said that RBI would announce small finance bank licences next month.

The small finance banks can provide basic banking services like accepting deposits and lending to the unbanked sections such as small farmers, micro business enterprises, micro and small industries and unorganised sector entities.

The payments banks would be allowed to provide payments and remittance services, but can not issue credit cards or accept deposits beyond Rs 1 lakh. They can issue ATM and debit cards and also distribute mutual fund and insurance products.

Rajan said introduction of payments banks will revolutionise banking, make it very exciting for customers and existing lenders will have to improve service to retain depositors.

"I've no doubt banking will become very competitive and universal banks have to provide full service to retain customers," Rajan said during a chat with SBI Chairman Arundhati Bhattacharya at the conference organised by the country's largest lender.