The
Reserve Bank of India has today decided to grant “in-principle”
approval to the following 11 applicants to set up payments banks under
the Guidelines for Licensing of Payments Banks issued on November 27, 2014 (Guidelines).
- Aditya Birla Nuvo Limited
- Airtel M Commerce Services Limited
- Cholamandalam Distribution Services Limited
- Department of Posts
- Fino PayTech Limited
- National Securities Depository Limited
- Reliance Industries Limited
- Shri Dilip Shantilal Shanghvi
- Shri Vijay Shekhar Sharma
- Tech Mahindra Limited
- Vodafone m-pesa Limited
Selection process
The process for selecting the applicants has been as follows:
First,
a detailed scrutiny was undertaken by an External Advisory Committee
(EAC) under the Chairmanship of Dr. Nachiket Mor, Director, Central
Board of the Reserve Bank of India. The recommendations of the EAC were
an input to an Internal Screening Committee (ISC), consisting of the
Governor and the four Deputy Governors. This Internal Screening
Committee prepared a final list of recommendations for the Committee of
the Central Board (CCB), after independently scrutinising all the
applications. At its meeting on August 19, 2015, the CCB went through
the applications, informed by the recommendations of the EAC and the
ISC, and approved the announced list of applicants.
In
arriving at the final list, the CCB noted that it would be difficult at
this stage to forecast the most successful likely model in the emerging
business of payments. The CCB further noted that payments banks cannot
undertake lending, and therefore believed that the payments bank would
not be subject to the same risks as a full service bank. Therefore, the
CCB evaluated applicants to assess whether there would be unacceptable
risk even to the narrower functions of a payments bank. It has selected
entities with experience in different sectors and with different
capabilities so that different models could be tried. It did ensure that
all the selected applicants have the reach and the technological and
financial strength to service hitherto excluded customers across the
country. Nevertheless, the in-principle approvals are subject to the
condition {(15 (v)} in the guidelines, including any developments in
on-going cases.
Going forward, the Reserve Bank intends to
use the learning from this licensing round to appropriately revise the
Guidelines and move to giving licences more regularly, that is,
virtually “on tap”. The Reserve Bank believes that some of the entities
who did not qualify in this round, could well be successful in future
rounds.
Background
It may be recalled that on August 27, 2013, the Reserve Bank placed on its website, a policy discussion paper
on Banking Structure in India – The Way Forward. One of the
observations in the discussion paper was that there is a need for niche
banking in India, and differentiated licensing could be a desirable step
in this direction, particularly for infrastructure financing, wholesale
banking and retail banking.
Subsequently, the Committee on
Comprehensive Financial Services for Small Businesses and Low Income
Households (Chairman: Dr. Nachiket Mor) in its report released in January 2014
examined the issues relevant to an ubiquitous payment network and
universal access to savings and recommended the licensing of payment
banks to offer financial services to the hitherto excluded segments of
the population.
In the Union Budget 2014-2015 presented on July 10, 2014, the Hon’ble Finance Minister announced that:
“After
making suitable changes to current framework, a structure will be put
in place for continuous authorization of universal banks in the private
sector in the current financial year. RBI will create a framework for
licensing small banks and other differentiated banks. Differentiated
banks serving niche interests, local area banks, payment banks etc. are
contemplated to meet credit and remittance needs of small businesses,
unorganized sector, low income households, farmers and migrant work
force”.
Draft guidelines for licensing of payments banks were released for public comments on July 17, 2014.
Based on the comments and suggestions received on the draft guidelines,
final guidelines for licensing of payments banks were issued on
November 27, 2014. The Reserve Bank also issued clarifications to the queries (numbering 144) on the guidelines on January 1, 2015. The Reserve Bank received 41 applications for payments banks.
Details of “in-principle” approval
The
“in-principle” approval granted will be valid for a period of 18
months, during which time the applicants have to comply with the
requirements under the Guidelines and fulfil the other conditions as may
be stipulated by the Reserve Bank.
On being satisfied that
the applicants have complied with the requisite conditions laid down by
it as part of “in-principle” approval, the Reserve Bank would consider
granting to them a licence for commencement of banking business under
Section 22(1) of the Banking Regulation Act, 1949. Until a regular
licence is issued, the applicants cannot undertake any banking business.
Additional Details
The
guidelines provided that after initial screening for prima facie
eligibility, the applications would be referred to an External Advisory
Committee (EAC) constituted for the purpose. Accordingly, to screen the
applications, and to recommend licences only to those applicants who
comply with the Guidelines, the Reserve Bank, on February 4, 2015, set
up an EAC chaired by Dr. Nachiket Mor, Director, Central Board of
Reserve Bank of India. EAC had three members: Ms. Roopa Kudva, former MD
& CEO, CRISIL Limited, Ms. Shubhalakshmi Panse, former Chairman
& Managing Director, Allahabad Bank and Dr. Deepak Phatak, Chair
Professor, IIT Bombay. Later, as Ms Roopa Kudva, recused herself from
the Committee the Reserve Bank, in May 2015, appointed Shri Naresh
Takkar, Managing Director & Group CEO, ICRA Limited to the
Committee.
As stipulated in the Guidelines, the EAC set up
its own procedures for screening the applications including calling for
more information, wherever required. The applications were screened for
financial soundness, i.e., five year track record of the promoter and
the key entities of the promoter group. The assessment also included
governance issues with a focus on ‘fit and proper’ criteria for
promoters based on due diligence reports and/or any other information
indicating deliberate and repeated violations of law/regulations;
significant Incremental contribution in terms of existing and
demonstrated physical rural reach, business model innovation,
technological and operational capability indicating a model that can
handle the required volumes of transactions and money with a high degree
of demonstrated fidelity and safety; and proposed business plan in
terms of product mix, innovative technological solutions, geographic
access and viable financial plan. In order to facilitate assessment of
outreach and capability for handling low value high volume transactions,
additional data was called for from applicants and was considered by
EAC for arriving at the decisions. The EAC submitted its report on July
06, 2015.
Alpana Killawala Principal Chief General Manager
Press Release : 2015-2016/437
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