RBI to issue small finance bank licences in a few days

The Reserve Bank of India (RBI) will issue small finance bank licences to selected entities in the next few days, as part of the efforts at furthering financial inclusion, RBI deputy governor S S Mundra said today.

The small finance banks are intended to act as a savings vehicles primarily to unserved and underserved sections of the population, and supply of credit to small business units, small and marginal farmers, micro and small industries and other unorganised sector entities, through high technology-low cost operations.

RBI, which had given in-principle approval to 11 entities to set up payments banks, last month, will now announce eligible candidates from among 72 applicants for small finance bank licences.

"There is another category of differentiated bank that is small finance bank, which we expect to announce again in-principle approval in the next few days," Mundra said during a panel discussion at an event organised by The Economist.

The small finance banks will provide basic banking services like accepting deposits and lending to small farmers, micro business enterprises, micro and small industries and unorganised sector entities.

While there will not be any restriction in the area of operations of small finance banks, RBI has prescribed a Rs100-crore minimum paid-up equity capital for small finance banks.

The promoters have to contribute a minimum 40 per cent of the paid-up equity capital of such small finance bank and gradually brought down to 26 per cent within 12 years from the date of commencement of business of the bank.

The foreign shareholding in the small finance bank would be as per the foreign direct investment (FDI) policy for private sector banks as amended from time to time.

The small finance banks will be subject to all prudential norms and regulations of RBI as applicable to existing commercial banks including requirement of maintenance of cash reserve ratio (CRR) and statutory liquidity ratio (SLR).

Later interacting with reporters, Mundra said India is better prepared to deal with the impact of the likely rate hike by the US Federal Reserve. Moreover, he said, the current account deficit (CAD) is better, foreign exchange reserve position is comfortable and macro-economic environment stable.

"So, I don't think any regulatory response is immediately needed," he said, adding that the RBI will not hesitate to take necessary steps.

He also said the first quarter economic data released by CSO were "very near" the RBI's projections.

He also said the RBI is targeting 6 per cent retail (CPI) inflation by January 2016.

On the issue of rupee volatility, he said, "Volatility is always a concern. It is not any particular level which we target... RBI action is there to ensure that there is no undue volatility".