As the representative of the information technology industry, we take this opportunity to present our views and suggestions on the Draft Guidelines for ‘on tap’ Licensing of Small Finance Banks in the Private Sector which provides a window of opportunity to non-banking financial companies (NBFCs), Payments Banks (PBs), micro-finance institutions (MFIs) and fintechs (in lending) to apply for Small Finance Banks (SFBs). These entities might even be able to transition to a universal bank after satisfactory track record of performance as an SFB for a minimum period of five years.
Our submission to the RBI lists out different concern areas in the draft guidelines and also provides suggestions to address them. While a copy of the submission has been attached with this blog, here are the major suggestions made by NASSCOM in its submission to RBI:
- The five years existence criteria should be relaxed for PBs. Alternatively, to ensure 5 years existence criteria, the experience of PBs promoters as Urban Commercial Bank (UCB)/ Prepaid Payment Instrument (PPI)/ Local Area Bank (LAB) etc. should be included for the purpose of overall 5 years’ experience.
- Most of the PBs are showing interest in applying for the SFB license but the proposed requirement is a strong deterrent. It is unlikely that the PBs would like to operate a PB as well as an SFB. The likely scenario is a conversion to an SFB. Therefore, clause 13 (ii) of the draft guidelines is unnecessary and should be removed.
- There should be a separate section in the guidelines to provide a step by step requirements for conversion into an SFB.
- In case RBI is also considering a situation where the promoters of PB could operate both a PB and an SFB, then that may be explicitly clarified and NOFHC requirements maybe considered for that situation alone.
- The exception, which has been granted to the UCBs pertaining to the minimum net worth requirement, should also apply to PBs. At a time when the PBs are suffering huge losses, converting into an SFB will allow them to lend and scale up their profitability.
- The rationale for ₹200 crore minimum net worth is not clear. In fact, the rationale for ₹100 crore minimum net worth for PBs was also not clear. We do understand the need for a fit and proper criterion. However, the minimum capital requirement should be linked to the size of the business and there is merit in considering a lower threshold on the capital front. Given the experience with the PBs, the RBI should consider a ₹100 crore requirements for all SFBs, including UCBs and separately consider decreasing the capital requirements for PBs to ₹50 crore. The fit and proper conditions should be dealt with holistically.
- The processes listed by RBI for considering an application for carrying out a new business should be aligned to the provisions of the draft Indian Financial Code.
- RBI should set up a control framework to monitor the progress of the applicants who receive the final license to set up SFBs. Complete outsourcing of technology should be discouraged and open source block chain based application should be encouraged. Low cost futuristic technology will take care of operational costs while managing internal frauds. RBI should take appropriate policy steps in this regard.