On-tap’ licences to set up universal banks and small finance banks
- May 18, 2022
- Posted by: OptimizeIAS Team
- Category: DPN Topics
On-tap’ licences to set up universal banks and small finance banks
Subject: Economy
Section: Monetary Policy
Six out of the 11 applications for ‘on-tap’ licences to set up universal banks and small finance banks were rejected by the Reserve Bank of India (RBI).
Concept:
An ‘on-tap’ facility means the RBI will accept applications and grant licenses for banks throughout the year. The policy allows aspirants to apply for universal bank license at any time, subject to the fulfillment of the set conditions.
Guidelines for ‘on tap’ Licensing of Universal Banks and Small Finance Banks in the Private Sector, were issued on August 1, 2016 and December 5, 2019 respectively.
Eligible entities seeking universal bank licences must be:
- Individuals/entities with at least 10 years of experience in banking and finance at a senior level or private companies or groups with at least 10 years of successful track record.
- Groups or companies applying for such licences must have assets of Rs 5,000 crore or above and the non-financial businesses don’t account for 40% or more of these assets.
To be eligible to apply for a small finance bank licence:
- Individuals must have at least 10 years of experience in the banking and finance sector at senior levels. However, large industrial houses are excluded as eligible entities but are permitted to invest in the banks up to 10%.
- Groups, companies, existing payments banks, non-banking finance companies, microfinance companies, local area banks and cooperative banks applying for these licenses must have at least five years of successful track record.
Small Finance Banks (SFBs): Small Finance Banks are the financial institutions which provide financial services to the unserved and unbanked region of the country. Existing non-banking financial companies (NBFC), microfinance institutions (MFI) and local area banks (LAB) can apply to become small finance banks.They are registered as a public limited company under the Companies Act, 2013. Scope of Activities:
Universal Banks: Universal Banks are the financial entities like the commercial banks, Financial Institutions, Non-Banking Financial Companies (NBFCs), which undertake multiple financial activities under one roof, thereby creating a financial supermarket. The entities focus on leveraging their large branch network and offer a wide range of services under a single brand name/Bank’s name. Universal banking is a system of banking where banks undertake a blanket of financial services like investment banking, commercial banking, development banking, insurance and other financial services including functions of merchant banking, mutual funds, factoring, housing finance, insurance etc. In simple words, Universal Banking means that Financial Institutions (FIs) and Banks are allowed to undertake all kinds of activities of banking, financing and related businesses. RBIs universal bank licensing guidelines:
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