GOVERNMENT OF INDIA
Ministry of Finance
DEPARTMENT OF FINANCIAL SERVICES 

RAJYA SABHA
UNSTARRED QUESTION NO. 503
ANSWERED ON TUESDAY, APRIL 28, 2015 / VAISAKHA 8, 1937 (SAKA) 

QUESTION
Licenses for Small Finance Banks and Payment Banks

503. SHRI RAJEEV CHANDRASEKHAR: 

Will the Minister of FINANCE be pleased to state; 

(a)   the steps being taken by the Reserve Bank of India (RBI) to ensure that privatecompanies which are rushing to get licenses for small finance banks andpayment banks have had no past history of Income Tax violation or allegationsof money laundering; and 

(b)   the details of criteria set by the RBI for companies that are trying to apply forthese licenses? 

ANSWER
THE MINISTER OF STATE IN THE MINISTRY OF FINANCE
(SHRI JAYANT SINHA)

(a) and (b): In terms of the Reserve Bank of India (RBI) guidelines issued forLicensing of Small Finance Banks and Payments Banks on November 27, 2014, Promoters/Promoter Groups as defined in the Securities and Exchange Board ofIndia (SEBI) (Issue of Capital and Disclosure Requirements) Regulations, 2009should be 'fit and proper' in order to be eligible to promote small finance banks. RBIwould assess the 'fit and proper' status of the applicants on the basis of their pastrecord of sound credentials and integrity; financial soundness and successful trackrecord of professional experience or of running their business, etc. for at least aperiod of five years. RBI will assess the 'fit and proper' criteria of the applicants whichincludes due diligence of promoters and group entities. As part of the due diligenceprocess to assess the track record of the applicants, confidential information will besought from various investigative and regulatory agencies. 

The other criteria as per the guidelines for the small finance and payments banks aregiven below:

 Small Finance Banks:

• The objectives of setting up of small finance banks will be for furthering financialinclusion by (i) provision of savings vehicles primarily to unserved andunderserved sections of the population, and (ii) supply of credit to small businessunits; small and marginal farmers; micro and small industries; and otherunorganised sector entities, through high technology-low cost operations. 

• Resident individuals/professionals with 10 years of experience in banking andfinance; and Companies and Societies owned and controlled by residents will beeligible as promoters to set up small finance banks. 

• The minimum paid up voting equity capital for small banks shall be Rs.100 crore. 

• The small finance bank shall primarily undertake basic banking activities ofacceptance of deposits and lending to unserved and underserved sectionsincluding small business units, small and marginal farmers, micro and smallindustries and unorganised sector entities. 

• The maximum loan size and investment limit exposure to a single and groupobligor would be restricted to 10 per cent and 15 per cent of its capital funds,respectively.

Payments Banks:

• The primary objective of setting up of payments banks will be to further financialinclusion by providing (i) small savings accounts and (ii) payments / remittanceservices to migrant labour workforce, low income households, small businesses,other unorganised sector entities and other users, by enabling high volume-lowvalue transactions in deposits and payments / remittance services in a securedtechnology-driven environment. 

• The existing non-bank Pre-paid Payment Instrument (PPI) issuers authorized under the Payment and Settlement Systems Act, 2007 (PSS Act); and otherentities such as individuals; Non-Banking Finance Companies (NBFCs), corporateBCs, mobile telephone companies, super-market chains, companies, real sectorcooperatives; that are owned and controlled by residents; and public sectorentities are eligible to set up payments banks. 

• The minimum paid up voting equity capital of the Payments Bank shall be Rs.100crore. 

• Existing PPI licence holders could opt for conversion into payments banks 

• A promoter / promoter group can have a Joint Venture with an existing scheduledcommercial bank to set up a payments bank.

The Payments Bank would be permitted to undertake only certain restricted activitiespermitted to banks under the Banking Regulation Act, 1949, viz. Acceptance ofdemand deposits, i.e., current deposits, and savings bank deposits, (initially restrictedto holding a maximum balance of Rs.100,000 per customer), issuance of ATM and debit cards, Payments and remittance services through various channels (includingbranches, BCs and mobile banking), Issuance of PPIs, Internet banking (transactingprimarily using the Internet) and Functioning as Business Correspondent (BC) ofother banks.