RBI plans fresh licensing of small finance banks, draft guidelines by August

RBI had, in its Guidelines for Licensing of “Payments Banks” and “Small Finance Banks” in the private sector dated 27 November 2014, notified that after gaining experience in dealing with these banks, it would consider ‘on tap’ licensing of these banks.

RBI had earlier issued Small Finance Bank license to ten such banks. Further, based on a review of their performance, eight of the ten Small Finance Banks have also been included in the second schedule of the RBI Act, 1934. 

RBI noted that these eight banks have achieved their priority sector targets and thus attained their mandate for furthering financial inclusion. There is a case for more players to be included to enhance access to banking facilities to the small borrowers and to encourage competition, it added. 

RBI said it will come up with Draft Guidelines for ‘on tap’ licensing of small finance banks by the end of August 2019.

However, RBI said more time will be needed to review the performance of payments banks before considering the licensing of this category of banks to be put ‘on tap’.

RBI also decided to set up a working group to review the regulatory guidelines and supervisory framework applicable to Core Investment Companies (CICs).

RBI in introduced a separate framework for the regulation of systemically important CICs in August 2010, in view of the difference in the business model of a holding company relative to other non-banking financial companies. 

However, over the years, corporate group structures have become more complex involving multiple layering and leveraging, which has led to greater inter-connectedness to the financial system through their access to public funds. Further, in light of recent developments, there is a need to strengthen the corporate governance framework of CICs, RBI stated.