Loading...

Top
Help
×

By creating an account you can:

Logo TaxTMI
Call Us / Help / Feedback

Contact Us At :

E-mail: [email protected]

Call / WhatsApp at: +91 99117 96707

For more information, Check Contact Us

FAQs :

To know Frequently Asked Questions, Check FAQs

Most Asked Video Tutorials :

For more tutorials, Check Video Tutorials

Submit Feedback/Suggestion :

Email :
Please provide your email address so we can follow up on your feedback.
Category :
Description :
Min 15 characters 0/2000
Make Most of Text Search
  1. Checkout this video tutorial: How to search effectively on TaxTMI.
  2. Put words in double quotes for exact word search, eg: "income tax"
  3. Avoid noise words such as : 'and, of, the, a'
  4. Sort by Relevance to get the most relevant document.
  5. Press Enter to add multiple terms/multiple phrases, and then click on Search to Search.
  6. Text Search
  7. The system will try to fetch results that contains ALL your words.
  8. Once you add keywords, you'll see a new 'Search In' filter that makes your results even more precise.
  9. Text Search
Add to...
You have not created any category. Kindly create one to bookmark this item!
Create New Category
Hide
Title :
Description :
❮❮ Hide
Default View
Expand ❯❯
Close ✕
🔎 News - Adv. Search
TEXT SEARCH:

Press 'Enter' to add multiple search terms. Rules for Better Search

Search In:
Main Text + AI Text
  • Main Text
  • Main Text + AI Text
  • AI Text
Category: ?
Categorized by AI
---- All Categories ----
  • ---- All Categories ----
  • Income Tax
  • GST
  • Customs, DGFT & SEZ
  • FEMA & RBI
  • Corp. Laws, SEBI & IBC
  • PMLA, Black Money & ED
  • Budget
  • News and Press Release
  • PTI News
Month:
---- All Months ----
  • ---- All Months ----
  • January
  • February
  • March
  • April
  • May
  • June
  • July
  • August
  • September
  • October
  • November
  • December
Year:
---- All Years ----
  • ---- All Years ----
  • 2026
  • 2025
  • 2024
  • 2023
  • 2022
  • 2021
  • 2020
  • 2019
  • 2018
  • 2017
  • 2016
  • 2015
  • 2014
  • 2013
  • 2012
  • 2011
Sort By: ?
In Sort By 'Default', exact matches for text search are shown at the top, followed by the remaining results in their regular order.
Relevance Default Date
    India’s Foreign Exchange Markets: Getting ready for the next Decade [Keynote Address delivered by Deputy Governor Shri Rohit Jain on the Annual Day ...
    Govt rejects ethanol link to sugar price surge, says duty free imports allowed to curb prices
    China moves to wrap up saga of troubled property giant Evergrande after founder gets life sentence
    India's forex kitty swells USD 9.9 bn to USD 716.9 bn
    Bengaluru airport: AERA slashes user development fee to Rs 300 for domestic passengers
    NUMR Inc. helps deliver Axis Bank's data-driven excellence in customer experience
    ED can't add old FIR to Enforcement Case Information Report to sustain PMLA proceedings: Delhi HC
    Rupee settles on flat note, 3 paise higher at 95.71 against US dollar
    VinFast India Partners with Federal Bank to Strengthen Dealer Financing Ecosystem
    Sugar prices soar to Rs 70 per kg ahead of festive season in Bengal, jaggery also dearer
    Rupee gains 9 paise to 95.65 against US dollar in early trade
    Union Minister of State for Finance Shri Pankaj Chaudhary participated virtually in 21st Award Ceremony of Security Printing and Minting Corporation o...
    Over 745 gram gold paste seized at IGI; Customs nab carrier, receiver
    Quebec remains cautious on Canada-US trade deal as Ottawa pushes to restore US alcohol
    No cases of foreigners getting Aadhaar, other govt benefits reported during SIR in K'taka: Minister
    Govt allows free imports of 10 lakh tn raw sugar until Oct 31; caps sugar stock for bulk consumers
    Govt allows free imports of 10 lakh tn raw sugar until Oct 31
    DFS Organises Workshop to Strengthen Implementation of Reservation Policy Across Public Financial Institutions
    DPIIT Signs MoUs with PhonePe and Shell India to Strengthen Startup Ecosystem and Drive Innovation
    Union Minister of Commerce and Industry Shri Piyush Goyal Strengthens India-Singapore Economic Partnership through High-Level Bilateral and Business E...
❯❯
Maximize Maximize Maximize
0 / 200
Expand Note
Add to Folder

No Folders have been created

+

Are you sure you want to delete "My most important" ?

NOTE:

News
Showing Results for :
Reset Filters
Results Found:
Show All Summaries Hide All Summaries
August 21, 2026
Show AI Summary
Foreign exchange market modernisation prioritises delegated decisions, customer transparency, digital workflows, local-currency settlement and accountable risk management.
Foreign exchange market modernisation advances a facilitative, principles-based framework based on delegated decision-making by Authorised Dealers, risk-based reporting, and customer-centric service standards. Authorised Dealers must apply clear internal policies, avoid unnecessary documentation, disclose charges, timelines and grievance mechanisms, and ensure consistent treatment of comparable transactions. Local-currency settlement requires viable trade corridors, competitive hedging, correspondent relationships and robust AML/CFT controls. Digital workflows, electronic trading and reporting infrastructure should improve transparency and resilience, while automated tools remain subject to explainability, review and data-protection safeguards.
August 21, 2026
Show AI Summary
Sugar price containment measures restrict stockholding, permit duty-free imports, and strengthen inventory verification to deter hoarding.
Sugar price containment measures include stock limits for dealers, consumption-based inventory restrictions for bulk consumers, duty-free raw sugar imports, and physical verification of mill stocks to prevent hoarding and artificial scarcity. Price increases are attributed to lower domestic output, festive demand, crop damage, tighter global supplies, and speculation rather than sugar diversion for ethanol. Earlier crushing is advised to improve seasonal availability, while the ethanol programme supports management of sugar surpluses, mill liquidity, and timely sugarcane payments.
August 21, 2026
Show AI Summary
Cross-border insolvency enforcement constrains asset recovery as Evergrande liquidation, founder asset confiscation, and audit-related claims continue.
Evergrande's insolvency process involves liquidation proceedings for its mainland property-development unit and its Hong Kong-listed holding company. Cross-border recovery is constrained by separate Hong Kong and mainland China legal systems, particularly because most operational assets are located in mainland China. Liquidators are pursuing asset-tracing and recovery measures against the founder and connected persons, as well as claims concerning pre-collapse audits. Investigations identified revenue overstatement through manipulated financial data. Creditor recoveries are expected to be limited due to substantial liabilities and constraints on asset realisation.
August 21, 2026
Show AI Summary
Foreign exchange reserves rose through higher currency assets and gold holdings amid measures to attract external forex inflows.
India's foreign exchange reserves increased during the reporting week, led by higher foreign currency assets and gold reserves. Foreign currency assets include the dollar-value effects of movements in non-US currencies held as reserves. Special drawing rights declined marginally, while the reserve position with the International Monetary Fund increased marginally. Concessional swap arrangements formed part of measures to attract foreign-exchange inflows, while earlier reserve movements were linked to rupee pressure and dollar-sale intervention in the foreign-exchange market.
August 21, 2026
Show AI Summary
Incremental tariff recovery aligns airport user charges with completed infrastructure, preventing passengers from funding non-operational capital projects prematurely.
User development fees and airport tariffs for Bengaluru International Airport have been revised for the April 2026 to March 2031 control period. The incremental Average Revenue Requirement framework excludes costs of identified high-value capital projects from tariffs until the relevant assets are completed, commissioned and available for users. Incremental tariff recovery may begin only upon operational availability, aligning charges with infrastructure use, reducing premature recovery risk for passengers and airlines, and encouraging timely completion of major capital works.
August 21, 2026
Show AI Summary
Customer experience analytics enables banks to convert real-time feedback into operational improvements across high-value customer journeys.
Customer experience analytics is used in banking to transform customer data and real-time feedback into operational improvements across key customer journeys. Operational teams retain responsibility for strategy and execution, supported by in-house analytics and technology platforms for multi-channel journey mapping, journey analytics and prioritisation of high-value customer segments. AI-driven customer experience management tools capture customer signals, analyse journey performance and operationalise actionable insights across teams.
August 21, 2026
Show AI Summary
Predicate-offence dependency limits retrospective addition of old FIRs to preserve money-laundering proceedings after the original scheduled offence is closed.
Predicate-offence dependency under the Prevention of Money Laundering Act requires an ECIR to rest on a subsisting scheduled offence. Closure of the FIR forming its basis through an accepted cancellation report prevents continuation of money-laundering proceedings unless that closure is overturned. A previously registered FIR cannot be belatedly added merely to preserve an existing ECIR and coercive powers. Where statutory requirements are met, an independently registered ECIR may be required. Expansion of an ECIR cannot rest solely on tenuous factual links between successive disputes.
August 21, 2026
Show AI Summary
Indian rupee export invoicing rules now permit overseas contracts and invoices in rupees or foreign currency for eligible destinations.
Foreign Trade Policy provisions were amended to facilitate invoicing of overseas exports and receipt of export payments in Indian rupees. For exports to countries outside the Asian Clearing Union, export contracts and invoices may be denominated in Indian rupees or any foreign currency, replacing the earlier general requirement that export earnings be received in a freely convertible currency. The applicable requirements vary according to the destination country.
August 21, 2026
Show AI Summary
Dealer inventory financing supports working-capital flexibility, vehicle inventory management and electric-vehicle network expansion for authorised dealers.
Dealer inventory financing is to be provided by Federal Bank to VinFast India's authorised dealer network under a memorandum of understanding. The tailored financing is intended to improve dealers' working-capital flexibility, support maintenance of vehicle inventory, strengthen operational capability, and enable timely response to demand as the electric-vehicle distribution network expands.
August 21, 2026
Show AI Summary
Sugar supply pressures drive festive-season price increases as imports, stockholding limits and ethanol diversion shape market conditions.
Sugar prices in Bengal have risen sharply ahead of the festive season, with higher prices also affecting jaggery and other sugar-derived products. Supply constraints, mill stock releases, lower production in Brazil, ethanol diversion and possible hoarding have been identified as contributing factors. Raw-sugar imports have been permitted to augment availability, while stockholding restrictions limit inventories of specified bulk consumers. Lower projected closing stocks and possible future production effects from El Nino may sustain pressure on sugar availability and increase costs for sweetmeat producers.
August 21, 2026
Show AI Summary
Foreign currency inflows and FCNR(B) deposits supported rupee sentiment, while oil prices and geopolitical risks constrained currency strength.
The rupee strengthened marginally against the US dollar as the dollar index softened, but elevated crude oil prices, geopolitical uncertainty, reduced foreign participation and net foreign equity outflows constrained currency sentiment. RBI measures to attract foreign currency inflows, including FCNR(B) deposits, were expected to generate substantial inflows, although these had not produced meaningful rupee strength. Energy-market disruption and restrictions on fuel exports through the Strait of Hormuz added to external-sector pressures.
August 21, 2026
Show AI Summary
Sovereign security production priorities emphasise compliance, modernisation, employee innovation and operational excellence across currency, passport and coinage manufacturing.
SPMCIL performs a sovereign production mandate covering secure currency, coinage, passports and other products of national importance through its mints, currency presses, security presses and paper mill. Modernisation, compliance, transparency, efficiency, productivity, quality and corporate governance support the fulfilment of sovereign requirements. Individual employees and units were recognised for performance in productivity, environment and safety, energy conservation, knowledge and development, vigilance, and official-language implementation.
August 20, 2026
Show AI Summary
Customs enforcement against suspected gold smuggling leads to baggage seizure and apprehension of the alleged intended receiver.
Customs officers intercepted an arriving passenger at the green channel on intelligence inputs and examined baggage after X-ray screening indicated suspicious images. The examination recovered two oval capsules containing gold paste concealed in the baggage. Interrogation indicated that an alleged receiver was waiting outside the airport to collect the suspected smuggled gold. Customs officers apprehended the alleged receiver, and further investigation remains underway.
August 20, 2026
Show AI Summary
Provincial alcohol sales restrictions remain subject to economic impact assessment under proposed bilateral trade agreement negotiations.
Provincial control over alcohol distribution remains distinct from federal trade-making authority. Quebec retains authority over whether United States alcohol is offered through its government-controlled liquor distribution system, despite lacking a veto over a bilateral trade agreement. Federal requests to restore United States alcohol to retail shelves cannot compel provincial action. Proposed trade commitments also concern restrictions on United States agricultural products and Canada's dairy import regime, which applies lower tariffs within designated import volumes and higher duties beyond those volumes.
August 20, 2026
Show AI Summary
Electoral-roll verification found no reported cases of specified foreign nationals receiving identity-linked benefits or voter registration.
Electoral-roll special intensive revision recorded no reported cases of Pakistani, Bangladeshi or Iranian nationals obtaining Aadhaar cards, ration cards, other government benefits, or voter registration. Illegal immigrants are identified through police monitoring, intelligence measures, specialised operations and a Special Task Force. Overstayers are recorded through the District Police Module and Foreigners Identification Portal and produced before Foreigners Regional Registration Officer authorities. Persons found to be residing illegally are reported to the concerned central divisions, proceeded against through registered cases, retained pending case disposal and exit permits, and subjected to deportation steps.
August 20, 2026
Show AI Summary
Raw sugar tariff-rate quota permits duty-free imports while bulk consumers face consumption-based sugar stockholding limits.
Raw sugar imports are permitted duty-free under a tariff rate quota until 31 October 2026, with online allocation to eligible millers and refiners having functional refining capacity. Applicants must provide a refining-capacity declaration and supporting Consent to Operate; preference applies to importers undertaking timely completion of imports, while non-utilisation or failure to surrender allocations constitutes non-compliance. Bulk sugar consumers meeting the prescribed consumption threshold are subject to a stock cap of 15 days' consumption from 1 September to 30 November 2026.
August 20, 2026
Show AI Summary
Duty-free raw sugar imports under tariff rate quota seek to improve domestic supply and contain rising sugar prices.
Duty-free import of 10 lakh metric tonnes of raw sugar is permitted under a tariff rate quota until 31 October 2026. The import-policy measure seeks to increase domestic raw-sugar availability and restrain rising local prices amid reduced opening stocks. Price-containment measures also include a stockholding limit for bulk consumers using more than 10 tonnes of sugar monthly, restricting holdings to 15 days' consumption.
August 20, 2026
Show AI Summary
Reservation policy implementation is strengthened through capacity building, uniform institutional practices, welfare measures, and improved financial accessibility for Divyangjans.
Reservation policy implementation across Public Sector Banks, Public Sector Insurance Companies, sectoral regulators and Public Financial Institutions is being strengthened through a capacity-building workshop. The programme seeks uniform and effective application of Government reservation policies and related welfare measures. Senior human-resource functionaries and Chief Liaison Officers considered practical implementation issues, actionable measures for consistency, and operational concerns. It also focuses on improving accessibility of financial services for Divyangjans.
August 20, 2026
Show AI Summary
Startup ecosystem support expands through digital infrastructure, mentorship, market linkages and specialised assistance for energy and climate-tech innovation.
DPIIT's collaborations with PhonePe and Shell India create support mechanisms for DPIIT-recognised startups through technology access, digital infrastructure, mentorship, market opportunities and industry networks. PhonePe will provide transaction credits, access to the Indus AppStore, onboarding support, brand visibility, and training on fintech, sales, go-to-market strategy and business scaling. Shell India will assist energy and climate-tech startups through mentorship, strategic guidance, investor and incubator connections, participation opportunities, and knowledge-sharing materials on innovation and best practices.
August 20, 2026
Show AI Summary
India-Singapore economic cooperation advances through trade, investment, technology and business linkages, including agriculture, fintech and sustainable infrastructure collaboration.
India-Singapore economic cooperation was advanced through ministerial, business and government-to-business engagements focused on deepening bilateral trade, investment, technology and commercial linkages. Discussions addressed agri-exports, GCC-based commercial parks, fintech and sustainable infrastructure, alongside expanding agricultural market linkages. The engagements reinforced commitment to strengthening trade, investment, technology and business-to-business cooperation.

News

Back

All News

Showing Results for :
Reset Filters
No Records Found

News

Back

All News

Showing Results for : Reset Filters

Differentiated Banks: Design Challenges (Sri V Narayanan Memorial Lecture” delivered by Shri R. Gandhi, Deputy Governor at Sastra University, Campus Kumbakonam on April 18, 2015)

April 20, 2015

Contents
Summary
Note

Note

-

Bookmark

Print

Print

In a dynamic growth-oriented economy, the financial sector needs to keep pace with the demands of the real sector. It is crucial that the financial system is flexible and competitive to cope with multiple objectives and demands made on it by various constituents of the economy. The financial sector comes of age when it has diverse institutions, catering to different segments, ranging from retail to wholesale, micro-finance to project finance, nurturing specific sectors and offering specialised services and tailor-made products to niche segments.

2. In India, banking industry is the most important channel which provides financial services. One of the key objectives of bank nationalization in 1969 and 1980 was to spread the banking habit through opening branches in hitherto un-banked areas. The post nationalisation decades witnessed rapid spread of bank branches in hitherto un-banked areas and banking has since increased in scale and complexity.

3. Over the years Reserve Bank has completely liberalised and has put it at the banks’ end the decision about their geographical expansion and coverage; banks are effectively free to decide how many branches and other channel outlets they should open, when and where these touch points should be located, etc. Consequently, as on 31st March 2014, there were 1,16,415 branches of scheduled commercial banks, 19,082 branches of the RRBs, and 9,526 branches of UCBs. As on 31st March 2013, there were also 93,488 PACS in the country. Further, there were 3,98,408 Banking Correspondent touch-points as on 31st March 2014.

Financial Inclusion

4. Though the reach and scope of banking has thus increased, the huge demand for financial services remains unsatiated. It is a matter of concern that even with 150 domestic commercial banks [comprising 26 Public Sector Banks, 20 Private Sector Banks, 44 Foreign Banks, 4 Local Area Banks (LABs), 56 RRBs] and over 2,700 co-operative sector banks operating in the country, just about 40 per cent of the adults have formal bank accounts. Reserve Bank is aware of this aspect and is committed to financial inclusion and is exploring various possibilities to foster inclusion of the unserved and under-served population and areas and facilitate provision of affordable financial services by increasing competition among the banks and encourage innovative approaches (including channels, products, interface, etc.).

5. The Government of India and the Reserve Bank are clear that financial inclusion is a massive requirement and therefore all financial sector participants will have to put in consistent efforts in that direction. The Reserve Bank created a conducive and enabling environment for access to financial services to extend door step banking facilities in all the unbanked villages in a phase-wise manner. During Phase I, 74,414 unbanked villages with population more than 2,000 were identified and allotted to various banks through SLBCs for coverage through various modes, that is, branches, BCs or other modes such as ATMs and satellite branches, etc. All these unbanked villages have been covered by opening banking outlets comprising 2,493 branches, 69,589 BCs and 2,332 through other modes.

6. In Phase II, under the roadmap for provision of banking outlets in unbanked villages with population less than 2,000, about 4,90,000 unbanked villages have been identified and allotted to banks for coverage in a time bound manner by March 31, 2016. As per the progress reports received from SLBCs, banks had opened banking outlets in 1,83,993 unbanked villages by March 2014, comprising 7,761 branches, 163,187 BCs and 13,045 through other modes. The Reserve Bank is closely monitoring the progress made by the banks under the roadmap.

7. The Reserve Bank has encouraged banks to adopt a structured and planned approach to financial inclusion (FI) with commitment at the highest levels through preparation of board approved financial inclusion plans (FIPs). The first phase of FIPs was implemented over 2010-13. The Reserve Bank has used FIPs to gauge the performance of banks under their FI initiatives. With the completion of the first phase, a large banking network has been created and a large number of bank accounts have also been opened. However, it has been observed that the accounts opened and the banking infrastructure created has not seen substantial operations in terms of transactions. In order to continue with the process of ensuring meaningful access to banking services to the excluded, banks were advised to draw up fresh three-year FIPs for 2013-16. Banks were also advised that the FIPs prepared by them are disaggregated and percolate down to the branch level so as to ensure the involvement of all the stakeholders in FI efforts and also to ensure uniformity in the reporting structure under FIPs. The focus under the new plan is now more on the volume of transactions in the large number of accounts opened. A brief of the performance of banks under FIP up to March 31, 2014 is:

  1. The number of banking outlets has gone up to nearly 3,84,000. Out of these, 1,15,350 banking outlets were opened during 2013-14.
  2. Nearly 5,300 rural branches were opened during 2013-14. Out of these, nearly 4,600 branches were opened in unbanked rural centres (Tier V and Tier VI centres).
  3. Nearly 33,500 BC outlets were opened in urban locations during 2013-14 taking the total number of BC outlets in urban locations to 60,730 as at the end of March 2014.
  4. More than 60 million basic savings bank deposit accounts (BSBDAs) were added during the 2013-14 taking the total number of BSBDAs to 243 million.
  5. With the addition of 6.2 million small farm sector credits during 2013-14, there are 40 million such accounts as on March 31, 2014.
  6. With the addition of 3.8 million small non-farm sector credits during 2013-14, there are 7.4 million such accounts as on March 31, 2014.
  7. Nearly 328 million transactions were carried out in BC-ICT accounts during 2013-14 as compared to 250 million transactions during 2012-13.

8. As you all know, greater impetus to the Financial Inclusion plans has since been received through the Prime Minister’s Jan Dhan Yojana. Under this programme, in a short span of seven and a half months, a world record breaking achievement in the form of opening JDY Accounts for 14.71 crore persons as at end March 2015 has been accomplished.

Need for more Banks & Differentiated Banks

9. While thus the Financial Inclusion efforts through the existing set of banks have been continued, the Reserve Bank is conscious of the position that these may not be adequate to speed up the process and achieve the goals early. A Govt of India’s High Level Committee on Financial Sector Reforms headed by Dr Raghuram Rajan submitted in 2008 its Report titled “A Hundred Small Steps”. Among its various recommendations, the Committee recommended that there is a need for paradigm shift in the strategy for financial inclusion. It said the emphasis should be shifted from large-bank-led, public-sector-dominated, mandate-ridden, branch-expansion-focussed strategy. It said the poor need efficiency, innovation, and value for money which can come from motivated financiers who have low cost structure and thus see poor as profitable, but who also have the capacity to make decisions quickly, and with minimum paperwork. It therefore recommended that entry to private, well-governed, deposit-taking small finance banks be allowed.

10. The available options for the Reserve Bank to facilitate expansion of banking in the country are through private sector banks and foreign banks. The policy for approving foreign bank applications to open maiden branch and further expand their branch presence has been liberalized in 2005. However, for well documented reasons, we have been very cautious of allowing unrestricted and unbridled growth of foreign banks in India through their branch banking mode. Hence, after a long process of consultation since 2005, finally in November 2013, we came out with our policy for allowing the foreign banks through Wholly Owned Subsidiary (WOS) model. The scheme is yet to take off, though two foreign banks have since approached us formally in this regard.

11. The licensing policy for the private sector banks has been to grant universal bank licences as a “stop and go” licensing system. In the above background, in 2010, Reserve Bank brought out a Discussion Paper for licensing of new banks in the private sector, which was followed by draft guidelines and the issue of final guidelines in February 2013 and culminated in issuing of banking licences to two applicants. It may be recalled that the last two rounds of licensing took place way back in 1993 and 2004. We have since granted in principle approval for two new private sector universal banks. We have also expressed our intention to make the universal bank licences available “on tap”.

12. The concept of differentiated banks was first discussed in 2007 when it was felt that the time was not yet opportune for such banks. Thereafter, the concept was once again discussed in a Paper “Banking Structure in India - The Way Forward”, brought out by the Reserve Bank in August 2013. The Paper looked into various aspects of the banking structure, licensing of banks, banking models and suggested a transition path for some banks.

13. Another initiative taken by the Reserve Bank was setting up of a Committee headed by Shri Nachiket Mor, on Comprehensive Financial Services for Small Businesses and Low-Income Households to look into the issues relating to financial inclusion. The committee came up with two broad designs for the banking system in the country - the Horizontally Differentiated Banking System (HDBS) and the Vertically Differentiated Banking System (VDBS) based on the functional building blocks of payments, deposits and credit.

14. In a HDBS design, the basic design element remains a full-service bank that combines all three building blocks of payments, deposits, and credit but is differentiated primarily on the dimension of size or geography or sectoral focus. In a VDBS design, the full-service bank is replaced by banks that specialise in one or more of the building blocks of payments, deposits, and credit. Among others, the Committee suggested licensing of Payments Bank and wholesale banks as differentiated banks.

15. The Nachiket Mor committee opined that in the Indian context it would be important to have the regulatory flexibility to approach payments, savings, and credit independently (the Vertically Differentiated Banking Design) and to bring them together when the efficiency gains are high and the other costs are low. Some of the examples of such niche and specialised institutions are the South Korean Post Office Bank (only payments and deposits), GE Capital (credit and payments), MasterCard and Visa (only payments).

What are differentiated banks

16. Differentiated banks are distinct from universal banks as they function in a niche segment. The differentiation could be on account of capital requirement, scope of activities or area of operations. As such, they offer a limited range of services / products or function under a different regulatory dispensation. The concept is not entirely new. In fact, and in a sense, the UCBs, the PACS, the RRBs and LABs could be considered as differentiated banks as they operate in localized areas.

17. Some countries, for example, USA, Australia, Singapore, Hong Kong, Brazil, and Indonesia, have a differentiated bank licensing regime where differentiated licenses are issued specifically outlining the activities that the licensed entity can undertake. It is observed that the criterion for differentiation for the purposes of issuing differentiated licenses could be anchored either to capital conditions, as is practiced in Indonesia or to the activity as is the case in Australia, Singapore and Hong Kong.

18. In our country too, diverse opportunities in the banking sector reflecting significant macro-economic growth potential could be utilized by niche banking by facilitating specialization thereby enhancing optimal use of resources. Each of the niches has the potential to be individually large to sustain significant balance sheets and specialized entities can play a major role in all of them. Currently, while the banking sector is evolving depending on the needs of the economy, it is felt that given a choice, some banks and non-bank financial companies may choose to operate as a specialized niche bank to derive the obvious advantages of lower absolute capital requirements, lower cost of funds and specialization. As a regulator, the Reserve Bank felt that an enabling environment should be provided for niche banks also to operate and leverage upon them to contribute to the objective of financial inclusion.

The advantages of differentiated banks

19. There are several advantages of having differentiated banks. They are as follows:

  • There are diverse opportunities in the banking and financial landscape reflecting significant macro-economic growth potential in India and differentiated licensing could enable unlocking potential of these opportunities as it encourages niche banking by facilitating specialisation thereby reducing potential non-optimal use of resources.
  • Very large ticket, long term infrastructure lending requires risk management expertise that goes beyond traditional credit appraisals at banks. There is significant space for specialized entities in risk assessment and structuring of infrastructure finance.
  • Very low ticket unsecured credit requires risk management methodology and cost control that is not easy in the business model of conventional banks.
  • Increase in competition among banks could lower costs of transactions.
  • Gaps in SME finance can be filled with asset and cash flow based lending, operating leases, and factoring.
  • Issues of conflict of interest when a bank performs multiple functions would not arise, where differentiated licenses are issued.
  • Risk management systems and structure for regulatory compliance could be customized according to the banking type.
  • Customized application of supervisory resources according to the banking type could result in greater optimization of such scarce resources.
  • Core competency could be better harnessed leading to enhanced productivity in terms of reduced intermediation cost, better price discovery and improved allocative efficiency.

The Policy on Differentiated Banks

20. After a careful analysis of the advantages of and the challenges from licensing differentiated banks, we came to the conclusion that in balance, the advantages outweigh the challenges, and the challenges can be effectively met with appropriate arrangements. As mentioned by the HLCFSR, the environment is conducive for experimentation with small banks. The Reserve Bank has, accordingly, decided to licence differentiated banks and guidelines on licensing of small banks and payments banks have been issued in November 2014.

Objectives

21. The objectives of licensing small finance banks are furthering financial inclusion by (a) provision of savings vehicles, and (b) supply of credit to small business units; small and marginal farmers; micro and small industries; and other unorganised sector entities, through high technology-low cost operations. We hope to achieve the stated objectives by stipulating target segments where the credit should be directed and by indicating the ticket size of the advances to ensure that the target segment is serviced.

22. The objectives of setting up of payments banks are to further financial inclusion by providing (i) small savings accounts and (ii) payments / remittance services to migrant labour workforce, low income households, small businesses, other unorganised sector entities and other users. We hope to achieve the stated objectives by specifying the services that the payments bank could undertake and by indicating the manner in which the funds need to be deployed.

Promoters

23. The Small Finance Banks can be promoted by individuals who have at least 10 years of experience / expertise in financial or banking field or by private sector companies or societies with good track record. Existing MFIs, NBFCs or LABs can opt for conversion. The promoters will have to be resident Indians or owned and controlled by resident Indians. They will have to conform to stringent ‘fit and proper’ criteria. The promoter's minimum initial contribution to the paid-up equity capital of such small finance bank shall at least be 40 per cent and gradually brought down to 26 per cent within 12 years from the date of commencement of business of the bank.

24. The promoters of Payments Banks can be individuals who have at least 10 years of experience / expertise in financial or banking field or by telecom companies, PPI issuers, private sector companies or societies, super-market chains with good track record. Existing PPIs can opt for conversion. The promoters will have to be resident Indians or owned and controlled by resident Indians. They will have to conform to stringent ‘fit and proper’ criteria. There can be strategic partnership with other banks. The promoters can retain 100% ownership.

Responsibilities and permissible activities

25. The Small Finance Banks will be small sized universal banks. They have to finance priority sector to the extent of 75% of their NDTL; while 40% should be as per standard priority sector norms, the other 35% can be in any of the priority sector. 50% of their credit portfolio will have to be of ticket size of less than ₹25 lakh.

26. The Payments Banks can undertake payment and deposit services only. They can accept deposits from a customer upto ₹1 lakh only. They will have no credit portfolio. They should invest 75% of their NDTL only in Government securities. They will not be subject to priority sector norms. They can perform Banking Correspondent functions to other banks.

Area of operation

27. Both the Small Finance Banks and the Payments Banks can operate all over India.

Challenges of designing the differentiated banking structure

28. Given our objective of furthering financial inclusion, it was relatively easy to determine what type of differentiated banks that can subserve this objective. It was amply clear that the Small Finance Banks and Payments Banks are such entities. However, designing their structures was not that easy. We encountered several competing options, dilemmas and confusion. We resolved these through internal deliberations and external consultations. The feedback to our draft guidelines were also valuable in resolving some of these issues. Let me explain certain key challenges and how did we resolve them.

Safety of the banking system

29. The real challenge before the regulator would be maintaining systemic stability and protecting the interests of the depositors. Many niche-banking models typically depend on inter-bank liquidity, and wholesale funding which is a potential source of risk and vulnerability. Therefore, we decided that at least to begin with, the niche-banking should not be exposed to such liquidity risk. That is why we decided to design Small Finance Bank and Payments Bank which will not have such liquidity risk.

30. While encouraging the presence of different kinds of banks, the regulator has to ensure that risk management is robust as niche banks are susceptible to risks such as concentration risk which needs to be mitigated through adequate capital requirements and other suitable regulatory measures such as appropriate exposure norms and limits on leverage. This approach guided us in letting Small Finance Banks operate across the country, rather than limited to a narrow geography; in prescribing ₹ 100 crore as capital to ensure a decent size of balance sheet; in limiting exposures to single and group borrowers of Small Finance Banks to 10% and 15% of their net worth respectively; and in prescribing CRAR at 15% for the Small Finance Banks. Likewise, these risk management considerations determined in prescribing that Payments Banks cannot extend loans and advances and not less than 75% of their assets to be in Government securities only.

Managing public perception

31. Another challenge is to build trust in the minds of depositors and public in general. Considering that in India we have been only licensing universal banks which engage in all types of financial activities, it may be a challenge to manage the public perception and provide enough confidence to the public to enable them to place deposits in differentiated banks. There will be a need for creation of awareness through proper communication strategy and depositor education. We are conscious of this need.

Legal provisions for licensing of differentiated banks

32. Section 22 of the Banking Regulation Act, 1949 provides that a company intending to carry on banking business must obtain a licence from RBI except such of the banks (public sector banks and RRBs), which are established under specific enactments. Every bank in India, i.e., domestic and foreign, apart from banking business, can carry out all the activities permitted under Section 6 of the Banking Regulation Act. However, the Act also provides for Reserve Bank specifying the terms and conditions and other requirements, along with the licences. We have to employ these provisions for licensing of differentiated banks.

Viability of the models

33. Concentration risk: The differentiated banks will be fraught with concentration risk and a downturn in a particular sector or region can jeopardize the operations of a bank.

34. Asset Liability mismatches: Sector-specific banks run the risk of asset-liability mismatches. Asset liability mismatches will be posing a challenge to liquidity management by differentiated banks. It is therefore, imperative to have specific asset-liability management (ALM) tools for such banks.

35. Absence of cross subsidization: Universal banks function by engaging in cross-subsidizing loss making business in one segment with earnings from another which will not be possible for specialized banks thereby, impacting their revenues. The localized operations or restriction on the banks to engage in a particular activity could lead to non-availability of cross-subsidization impacting the viability of such models.

36. Avenues for income generation: Providing avenues for income generation for the differentiated banks is a challenge. To begin with, other fee-based business like distribution of insurance and mutual fund products, credit card business, remittances, payment and settlement business, etc. could be permitted to augment the revenue streams.

37. These model related issues we have addressed through prescribing single and group borrower limits and higher CRAR for Small Finance Banks, high quality liquid assets for the Payments Banks, cost minimization through technology and letting them undertake agency functions to augment revenue.

Ownership of differentiated banks and corporate governance issues

38. The question of what kind of promoters should be allowed access to banking system is also relevant in the context of the high standards of corporate governance needed for the banking industry. There are existing non-bank financial sector entities, micro finance entities, Local Area Banks and Urban Cooperative Banks who would like to convert themselves into Small Finance Banks; telecom companies who would like to set up and Pre-Paid Instrument Issuers (PPI) who would like to convert themselves into Payments Banks. Real sector companies, societies, partnership firms, industrial and business houses, and even individuals would be interested in obtaining a banking license. Thus the choice is innumerous.

39. Critical factors to the selection are the promoters’ credentials, experience and track record. We recognized that the aspirations of NBFCs, MFIs, LABs and UCBs are genuine and hence provided for their conversion, except that of UCBs. UCBs we are awaiting enabling statutory amendments. As regards individuals, we prescribed 10 years of experience in banking and finance as a precondition. In the case of real sector companies and societies, we prescribed track record of five years.

40. Since there are separate guidelines for foreign ownership of banks, we prescribed that the promoters of these Small Finance Banks and Payments Banks will have to be resident individuals or resident owned and controlled entities.

41. Further, in India we have pursued a policy of diversified ownership in private sector banks to prevent self-dealing by promoters and to enable the management to run the banks professionally. However, for a new bank to take sound roots, a determined and well-endowed promoter is an absolute requirement. We balanced these two conflicting ideas, in the case of Small Finance Banks by prescribing higher minimum locked in promoter’s stake in the initial five years and a gradual divestment thereof over a period of 12 years. Since in the Payments Banks case there is no conflict of interest as they are prohibited from lending activities, there are no such limitations on higher promoter’s holdings.

Challenges to regulation and supervision

42. Providing a level playing field in development obligations: Introducing differentiated banks would take away the level playing field which is now available to all banks uniformly where the banks are required to contribute to the priority sector obligations and other welfare measures of the Government. Implementing such obligations would become difficult through differentiated banks. Therefore, to ensure participation of these banks in the developmental needs of the economy, appropriate modifications may have to be set keeping in view the nature of the business model.

43. Accordingly, for Small Finance Banks we prescribed a higher level of Priority Sector Lending requirement at 75%, as the very purpose is financial inclusion. For Payments Banks, as they will not have lending activities, we have ensured their participation in development by prescribing 75% investment in Government securities.

Elimination of regulatory arbitrage

44. As universal banks are permitted to do all or any of the activities mentioned in Section 6 of Banking Regulation Act, 1949, regulating the universal banks is easier for the regulator as the regulations could be principle based and common to these banks. However, once the differentiated banks are licenced, there would be a need for having a different regulatory and supervisory approach specific for such banks depending on the specialization. It also needs to be ensured that there is no scope for regulatory arbitrage across different types of banks.

Multiple regulations and complexity in regulations

45. Also, there may be a need for more types of regulations for differentiated banks because of the different products lines, service offerings, clientele, areas and modus operandi of doing business. Multiple regulations need to work in tandem to ensure effective regulation. Further, there would be increase in complexity due to various types of banks and the different regulations applicable to each type of specialized category of banks. The regulatory and supervisory resources would have to be reoriented to ensure that effective regulatory and supervisory oversight is put in place.

Resolution regime for banks

46. More number of banks may mean more number of failures. It is a big risk in licensing of differentiated banks. However, as noted by the HLCFSR, failure of a few small banks may not have systemic consequence. Further, the Resolution regime is being strengthened.

Conclusion

47. There is enormous unmet potential demand lying in the rural areas and other unbanked centres which needs to be tapped. To tap this unmet demand for financial services, it is felt that it is worth experimenting on new types of institutions for financial inclusion. However, in a country like India where there exists differentiated markets and consumer groups, the concept may have to be contextualized according to the needs of the customers. As regards the health of the differentiated banks, there is a need for creating a balance between long term sustainability and the financial inclusion goals. We in the Reserve Bank believe we have carefully crafted suitable policy guidelines for the Small Finance Banks and Payments Banks keeping this balance in perspective. We have received 72 applications for the Small Finance Banks and 41 applications for the Payments Banks. We are processing them and hope to issue licences to the fit and proper applicants in a few months’ time. We hope that these new entities will speed up our financial inclusion efforts in a big way.

48. Thank you.

Topics

Acts Income Tax