The Reserve Bank of India (RBI) issued draft guidelines for setting up of small banks, which will have a local feel and will provide small-ticket loans to farmers and businesses.
The apex bank also issued draft norms for establishing payment banks, which will provide services to marginalized sections of society, including migrant labourers, for collecting deposits and remitting funds.
The step from the apex bank comes close on the heels of Finance Minister Arun Jaitley announcement in his Budget speech 2014-15 that RBI would create a framework for licensing small banks and other differentiated banks. Differentiated banks like local area banks and payment banks have been considered to meet credit and remittance needs of small businesses, unorganized sector, low income households, farmers and migrant work force.
As per RBI guidelines:
- The minimum capital requirement for such banks will be Rs 100 crore as against Rs 500 crore required for normal commercial banks.
- Small Banks will provide a whole range of basic banking services such as deposits and supply of credit, but their area of operation will be limited.
- Payments Banks will provide very basic and limited number of products such as acceptance of demand deposits and remittances of funds.
- Payments banks will have an extensive network of access points mainly in remote areas, either through their own branch network or through Business Correspondents (BCs) or through networks provided by others.
- Foreign investments in these new category banks would be as per the FDI policy.
- RBI has allowed existing non-bank pre-payment instrument issuers, Non-Banking Finance Companies (NBFCs), corporate BCs, mobile telephone companies, super-market chains, firms, real sector cooperatives and public sector entities to apply for the license to set up payments bank.
- To set up small banks, resident individuals with 10 years of experience in banking and finance, companies and Societies will be eligible as promoters.
- Existing NBFCs, Micro Finance Institutions (MFIs), and Local Area Banks (LABs) can also choose for conversion into small banks.
Local focus and the ability to serve smaller customers will be a key criterion in licensing the new category of banks.
With a view to promote infrastructure development and affordable housing, the Reserve Bank of India (RBI), exempted long-term bonds from the mandatory regulatory norms such as the Cash Reserve Ratio (CRR), the Statutory Liquidity Ratio (SLR) and Priority Sector Lending (PSL) if the money raised is utilized for financing of such projects. The easing of norms comes close on the heels of Finance Minister Arun Jaitley’s budget speech in which he had said that banks will be encouraged to provide long term loans to infrastructure sector with flexible structuring to absorb potential adverse contingencies, sometimes called as the “5/25 structure”.
As per RBI:
- Banks issuing long-term bonds with a minimum maturity of 7 years to raise resources for lending to i) long-term projects in infrastructure sub-sectors, and (ii) affordable housing have been exempted from regulatory pre-emption, such as, the CRR, the SLR and Priority Sector Lending (PSL). Banks are required to keep a portion of deposits as CRR with the central bank and park certain portion in government securities known as SLR.
- Banks may use the “5/25 structure” under which bank may fix longer amortization period for loans to projects in infrastructure and core industries sectors, suppose 25 years, with periodic refinancing, say every 5 years.
- The objective of these instructions is to extenuate the Asset-Liability Management (ALM) problems faced by banks in providing project loans to infrastructure and core industries sectors, and also to relax the raising of long term resources for project loans to infrastructure and affordable housing sectors.
- Banks should issue rupee denominated bonds in ‘plain vanilla form’ without call or put option with a fixed or floating rate of interest.
- Affordable housing lending includes loans eligible under the priority sector, and loans up to Rs.50 lakh to individuals for houses costing up to Rs.65 lakh located in the 6 metropolitan cities. For other areas, it includes loans of Rs.40 lakh for houses costing up to Rs.50 lakh.
Realtors’ body CREDAI, appreciated the RBI’s move to ease norms for banks to raise long-term funds for financing affordable housing, saying this would lead to cheaper credit for such projects.
According to the RBI, while banks have been raising resources in a significantly, issuance of long-term bonds for funding loans to infrastructure sector has not gathered momentum at all. Infrastructure and core industries projects have long gestation periods and need large capital investments.
India seeks to invest $1 trillion in infrastructure sector by 2017, half of which is expected to come from the private sector.
Encouraged by the Reserve Bank .of India (RBI), banks are working on setting up ‘Rural ATMs’ for dispensing currency notes of smaller denominations. Banks have been encouraged to find a solution for introducing rural ATMs.
Generally, in city or urban centric ATMs, they will give out high denomination notes (Rs 1,000 and Rs 500), whereas in rural areas, the demand of people is more of lesser denomination. So, banks will have to find an appropriate technology solution for a different type of ATM to care for the needs of the rural people. Banks are at present working on that and will hopefully they will come forward to put ATMs in rural areas (with this new technology).
The Reserve Bank of India (RBI) gave relief to diamantaires in Mumbai and Surat as it relaxed the rules of ‘suppliers’ and buyers’ credit for importing rough, cut and polished diamonds to up to 180 days from 90 days with immediate effect. In 2011, the RBI had decreased the import payment credit limit for the Indian diamantaires from 120 days to 90 days. If the 90-day period got lapsed, then the diamantaires were required to get permission from the RBI to make the payment which further delayed the process. Also, currency variations during this period were causing additional burden along with the interest cost for the diamond traders.
According to RBI notification, the “Clean Credit” i.e credit given by a foreign supplier to its Indian customer/buyer, without any letter of credit/letter of undertaking/fixed deposits from any Indian financial institution for import of rough, cut and polished diamond, may be permitted for a period not exceeding 180 days from the date of shipment.