RBI to set up payment bank soon, India Post likely candidate

India will soon have a payment bank, which will provide deposit and payment services but not extend loans, HR Khan, deputy governor of the Reserve Bank of India, said at a banking conference on Thursday.

"We are also coming up shortly with what could be payment bank because there is huge potential for financial inclusion with focus on remittances by involving payment system product," Khan told reporters on the sidelines of BFSI conference organised by SBI Capital Markets.

RBI, he said, is in the process of issuing guidelines on universal commercial banking licences.

The concept of payment bank was first proposed by a committee led by RBI board member Nachiket Mor.

It is likely that India Post may emerge the first payment bank that RBI considers a key to promoting financial inclusion and spread banking services to unserved banking areas of the country.

India Post, which was one of the 26 applicants for new bank licences, failed to secure a licence in the latest round. However, while issuing the licences in April, RBI had said that it would consider India Post's application separately in consultation with the government.

RBI governor Raghuram Rajan had last month said that India Post could begin as a payment bank.

It is likely that India Post spearheads financial inclusion that is critical in India, where more than half of the adult population still does not have access to banking services.

"I know that you are not happy that we have given licence to two (entities). We will come out with guidelines on universal commercial banking, which will not be a single window, but it will be 'on tap'," Khan said.

The RBI, in April, had given in-principle approval for setting up of banks to IDFC and Kolkata-base micro lender Bandhan.

As many as 26 applicants, including state-run IFCI and private sector Anil Ambani group and Aditya Birla group, Bajaj Finance, Muthoot Finance, Religare Enterprises and Shriram Capital, had applied in the recent round of issuance of new banking licences.

The deputy governor said the central bank will also issue norms for small banks in the private sector along with mid-sized universal commercial bank.