Recently, several small finance banks have mushroomed quite
rapidly, giving you multiple options for banking. The Reserve Bank of India
announced that it would come out with some guidelines for issuance of ‘non-tap’
licenses for the small finance banks. This is in order to promote banking
facilities for the small borrowers and for encouraging competition in this
sector. The Reserve Bank of India has rendered sanctioned hypothetically to ten
entities for entering the small finance banking sector in September 2015.
The ‘on tap’ licensing shall allow the entities to approach
the Reserve Bank of India (RBI) for acquiring licenses for small finance banks
on meeting certain criteria laid down by RBI. The entities eligible for
licenses would not have to wait for it for long, and it will be available on
demand.
In its statement on developmental and regulatory policies,
RBI mentioned that it was notified in the Guidelines for Licensing of “Payment
Banks” and “Small Finance Banks” in the private sector on November 27, 2014.
The RBI also stated that after gaining experience in dealing with these banks,
it would consider ‘on tap’ license of these banks. In regards to Small Finance
Banks, it was issued to ten such banks. Out of ten Small Finance Banks, eight
have also been included in the second schedule of the RBI Act, 1934. The
performance evaluation of the Small Finance Banks reveals that they have
achieved their priority sector targets and hence achieved their mandate for
promoting financial inclusion.
Among the ten entities, some of the major names that have
come up in recent times are Ujjivan Financial Services Pvt Ltd, Janalakshmi
Financial Services Pvt Ltd, ESAF Microfinance and Investments Pvt Ltd, and
Equitas Holdings Ltd. The other names include Disha Microfin Pvt Ltd, RGVN
(North East) Microfinance Ltd, Au Financiers (India) Ltd, Capital Local Area
Bank Ltd, Utkarsh Micro Finance Pvt Ltd, and Suryoday Micro Finance Pvt
Ltd.
Thus, there is a chance for more players to be included to
improve access to banking facilities to small burrowers and to promote
competition. Small Finance Banks provide basic banking service to the customers
like accepting deposits and lending to unserved and underserved sections like
small business units, micro and small industries, small and marginal farmers,
and the entities in the unorganized sector.
The RBI also observed that, over the years, corporate group
structures have become quite complicated which involves multiple layering and
leveraging which has led to more interconnectivity to the financial system via
their access to public funds. In the context of recent development, there is a
need to strengthen the corporate governance framework of Core Investment
Companies (CICs).
RBI introduced a spate framework in 2010 for the regulation
of systematically important CICs identifying the difference in the business
model of a holding company proportional to other non-banking financial
companies. For reducing the risk of excessive leverage, the Basel Committee on
Banking Supervision (BCBS) designed the Basel III Leverage Ratio (LR) which is
a simple, transparent, and a non-risk-based measure to increase accessible
risk-based capital adequacy requirements. In terms of the framework on leverage
ratio put in place by the Reserve bank, banks are being monitored against an
indicative leverage ratio of 4.5 percent. These guidelines have executed the
job of disclosures and also as the basis for parallel run by the banks. The
final minimum leverage ratio was to be demanded by taking them into consideration
for final rules, which was recommended by the Basel Committee by 2017 end. The
new micro-finance banks are indeed opening new avenues of banking to the people
who found it a bit difficult to borrow money from the regular banks for
establishing their own enterprise.
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