Popular payment banks such as Paytm Payments Bank and Airtel Payments bank may soon be eligible to become a full-fledged commercial bank with RBI allowing them to apply for the license at will if they meet the criteria. “Payments Banks can apply for conversion into SFB after five years of operations if they are otherwise eligible as per these guidelines,” said RBI. Doing so will also allow them to borrow money from the Reserve Bank and lend to customers. The minimum paid-up voting equity capital or net worth requirement to become a Small Finance Bank shall be Rs 200 crore, while for primary urban co-operative banks, who want to turn into Small Finance Banks will have the initial requirement of net worth at Rs 100 crore, which will have to be increased to Rs 200 crore within five years from the date of commencement of business.
In another major decision, the Small Finance Banks in India will be awarded the status of the scheduled bank immediately upon commencement of operations, says the RBI’s revised guidelines for ‘on tap’ licensing of small finance banks in the private sector.
The scheduled banks comprise scheduled commercial banks and scheduled co-operative banks. Being a scheduled bank, the bank becomes eligible for debts or loans at the bank rate from the RBI, and it automatically acquires the membership of clearinghouse, which is a financial institution formed to facilitate the exchange of payments, securities, or derivatives transactions.
Among the other important changes is the general permission to the Small Finance Banks, to open banking outlets from the date of commencement of operations. RBI’s move is aimed at providing cushion to the operations of small banks, including the payments banks. The other major revision is that the licensing window will be open on-tap, which will allow applicants to approach the banking regulator on an ongoing basis.