India moves to allow more businesses to offer basic financial services

In India, almost half the population has no access to banking

Mumbai: The Reserve bank of India (RBI) paved the way on Thursday for more businesses to set up niche banks offering limited financial services in a country where almost half the population have no access to banking.

Mobile telephone companies, super-market chains and prepaid payment card issuers are among those now eligible to set up a payments bank, which can receive deposits and remittances, but cannot lend.

The RBI released final guidelines for licensing of the new payments banks and small finance banks, calling in applications by Jan. 16. It could consider more applications at a later stage, the central bank said.

"The basic objective is to extend the range of financial services to the hitherto unbanked, which were forced to rely on non-regulated means," said Aman Bhargava, director, financial services advisory at Grant Thornton India LLP.

Small finance banks are aimed at giving loans to "unserved and underserved sections" including small business units, small and marginal farmers, and micro and small industries, the Reserve Bank of India said.

Both payments bank and small finance banks will have to maintain minimum reserve requirements, the RBI said.

The central bank barred large state-run institutions and big businesses from setting up small finance banks to ensure these specialise in lending to small businesses and poor people in Asia's third-largest economy.

Existing non-bank finance companies, local area banks and micro-finance institutions can set up small finance banks, the RBI said, adding that up to 50 percent of the bank's loan book should be of loans not above 2.5 million rupees ($40,500).

( Source : reuters )
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