Types of Banks Public, Private and foreign Banks, Payments Bank, Small Finance Banks

Public Banks

The Central Bank is the organ of government that undertakes the major financial operations of the government and by its conduct of these operations and by other means influences the behaviour of financial institutions, so as to support the economic policy of the Government.

The important responsibility of the Central Bank is to control the credit of the country in accordance with the needs of business and with a view to carrying out the board monetary policy adopted by the state. The Reserve Bank of India (RBI) is such a Bank in our country.

Private and foreign Banks

Payments Bank

Payments banks is an Indian new model of banks conceptualised by the Reserve Bank of India (RBI). These banks can accept a restricted deposit, which is currently limited to ₹200,000 per customer and may be increased further. These banks cannot issue loans and credit cards. Both current account and savings accounts can be operated by such banks. Payments banks can issue ATM cards or debit cards and provide online or mobile banking. Bharti Airtel set up India’s first payments bank, Airtel Payments Bank.

Regulations

The minimum capital requirement is Rs.100 crore (1 Billion). For the first five years, the stake of the promoter should remain at least 40%. Foreign share holding will be allowed in these banks as per the rules for FDI in private banks in India. The voting rights will be regulated by the Banking Regulation Act, 1949. The voting right of any shareholder is capped at 10%, which can be raised to 26% by Reserve Bank of India. Any acquisition of more than 5% will require approval of the RBI. The majority of the bank’s board of directors should consist of independent directors, appointed according to RBI guidelines.

The bank should be fully networked from the beginning. The bank can accept utility bills. It cannot form subsidiaries to undertake non-banking activities. Initially, the deposits will be capped at ₹100,000 per customer, but it may be raised by the RBI based on the performance of the bank. Payment Banks are not permitted to lend to any person including their directors. 25% of its branches must be in the unbanked rural area. The bank must use the term “payments bank” in its name to differentiate it from other types of bank. The banks will be licensed as payments banks under Section 22 of the Banking Regulation Act, 1949, and will be registered as public limited company under the Companies Act, 2013.

Small Finance Banks

Small finance banks are a type of niche banks in India. Banks with a small finance bank license can provide basic banking service of acceptance of deposits and lending. The aim behind these to provide financial inclusion to sections of the economy not being served by other banks, such as small business units, small and marginal farmers, micro and small industries and unorganised sector entities.

Summary of regulations

• Existing non-banking financial companies (NBFC), microfinance institutions (MFI) and local area banks (LAB) can apply to become small finance banks.
• They can be promoted either by individuals, corporate, trusts or societies.
• They are established as public limited companies in the private sector under the Companies Act, 2013.
• They are governed by the provisions of Reserve Bank of India Act, 1934, Banking Regulation Act, 1949 and other relevant statutes.
• The banks will not be restricted to any region.
• They were set up with the twin objectives of providing an institutional mechanism for promoting rural and semi urban savings and for providing credit for viable economic activities in the local areas.
• 75% of its net credits should be in priority sector lending and 50% of the loans in its portfolio must in ₹25 lakh range.
• The firms must have a capital of at least ₹200 crore.
• The promoters should have 10 years’ experience in banking and finance. The promoters stake in the paid-up equity capital will be at least 40% initially but must be brought down to 26% in 12 years. Joint ventures are not permitted. Foreign share holding will be allowed in these banks as per the rules for FDI in private banks in India.
• At net worth of ₹500 crore, listing will be mandatory within three years. Small finance banks having net worth of below ₹500 crore could also get their shares listed voluntarily.