The Reserve Bank of India has proposed major reforms in banking sector with issue of guidelines for setting up “Small and Payment Banks” which will cater to marginalized sections of the Society, including migrant laborers, for collecting deposits and remitting funds. These banks will provide a whole suite of basic banking products such as deposits and supply of credit, but in a limited area of operation. The payments banks will offer a limited range of products such as acceptance of demand deposits and remittances of funds. They will have a widespread network of access points particularly in remote areas, either through their own branch network or through Business Correspondents (BCs)/agents or through networks provided by others.

1. Small & Payment Banks:
Future of Local Banking
Equi Corp Associates, Advocates &
Solicitors
TRANSACTION ADVICE LITIGATION
Small & Payment Banks:
Future of Local Banking
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2. Introduction
 The Reserve Bank of India has proposed major reforms in banking sector with issue of
guidelines for setting up “Small and Payment Banks” which will cater to marginalized
sections of the Society, including migrant laborers, for collecting deposits and remitting
funds.
 These banks will provide a whole suite of basic banking products such as deposits and
supply of credit, but in a limited area of operation. The payments banks will offer a
limited range of products such as acceptance of demand deposits and remittances of
funds. They will have a widespread network of access points particularly in remote areas,
either through their own branch network or through Business Correspondents
(BCs)/agents or through networks provided by others.
 The existing non-bank pre-payment instrument issuers, non-banking finance companies
(NBFCs), corporate BCs, mobile telephone companies, super-market chains, companies,
real sector cooperatives and public sector entities may apply to set up a payments bank.
 In case of small banks, resident individuals with 10 years of experience in banking and
finance, companies and Societies will be eligible as promoters to set up small banks.
NBFCs, micro finance institutions (MFIs), and Local Area Banks (LABs) can also opt for
conversion into small banks.
 The Reserve Bank of India has proposed major reforms in banking sector with issue of
guidelines for setting up “Small and Payment Banks” which will cater to marginalized
sections of the Society, including migrant laborers, for collecting deposits and remitting
funds.
 These banks will provide a whole suite of basic banking products such as deposits and
supply of credit, but in a limited area of operation. The payments banks will offer a
limited range of products such as acceptance of demand deposits and remittances of
funds. They will have a widespread network of access points particularly in remote areas,
either through their own branch network or through Business Correspondents
(BCs)/agents or through networks provided by others.
 The existing non-bank pre-payment instrument issuers, non-banking finance companies
(NBFCs), corporate BCs, mobile telephone companies, super-market chains, companies,
real sector cooperatives and public sector entities may apply to set up a payments bank.
 In case of small banks, resident individuals with 10 years of experience in banking and
finance, companies and Societies will be eligible as promoters to set up small banks.
NBFCs, micro finance institutions (MFIs), and Local Area Banks (LABs) can also opt for
conversion into small banks.
 The Reserve Bank of India has proposed major reforms in banking sector with issue of
guidelines for setting up “Small and Payment Banks” which will cater to marginalized
sections of the Society, including migrant laborers, for collecting deposits and remitting
funds.
 These banks will provide a whole suite of basic banking products such as deposits and
supply of credit, but in a limited area of operation. The payments banks will offer a
limited range of products such as acceptance of demand deposits and remittances of
funds. They will have a widespread network of access points particularly in remote areas,
either through their own branch network or through Business Correspondents
(BCs)/agents or through networks provided by others.
 The existing non-bank pre-payment instrument issuers, non-banking finance companies
(NBFCs), corporate BCs, mobile telephone companies, super-market chains, companies,
real sector cooperatives and public sector entities may apply to set up a payments bank.
 In case of small banks, resident individuals with 10 years of experience in banking and
finance, companies and Societies will be eligible as promoters to set up small banks.
NBFCs, micro finance institutions (MFIs), and Local Area Banks (LABs) can also opt for
conversion into small banks. www.equicorplegal.com

3. Small Banks
 The objective for these Small Banks is to increase financial inclusion by
provision of savings vehicles to under-served and un served sections of
the population, supply of credit to small farmers, micro and small
industries, and other unorganized sector entities through high
technology-low cost operations. Local focus and the ability to serve
smaller customers will be a key criterion in licensing such banks
 The area of operations would normally be restricted to contiguous
districts in a homogenous cluster of states of union territories so that the
Small Bank has a ‘local feel’ and culture. However, if necessary, it
would be allowed to expand its area of operations beyond contiguous
districts in one or more states with reasonable geographical proximity.
 In view of concentration of area of operations, the Small Bank would
need a diversified portfolio of loans, spread over it area of operations.
 The objective for these Small Banks is to increase financial inclusion by
provision of savings vehicles to under-served and un served sections of
the population, supply of credit to small farmers, micro and small
industries, and other unorganized sector entities through high
technology-low cost operations. Local focus and the ability to serve
smaller customers will be a key criterion in licensing such banks
 The area of operations would normally be restricted to contiguous
districts in a homogenous cluster of states of union territories so that the
Small Bank has a ‘local feel’ and culture. However, if necessary, it
would be allowed to expand its area of operations beyond contiguous
districts in one or more states with reasonable geographical proximity.
 In view of concentration of area of operations, the Small Bank would
need a diversified portfolio of loans, spread over it area of operations.
 The objective for these Small Banks is to increase financial inclusion by
provision of savings vehicles to under-served and un served sections of
the population, supply of credit to small farmers, micro and small
industries, and other unorganized sector entities through high
technology-low cost operations. Local focus and the ability to serve
smaller customers will be a key criterion in licensing such banks
 The area of operations would normally be restricted to contiguous
districts in a homogenous cluster of states of union territories so that the
Small Bank has a ‘local feel’ and culture. However, if necessary, it
would be allowed to expand its area of operations beyond contiguous
districts in one or more states with reasonable geographical proximity.
 In view of concentration of area of operations, the Small Bank would
need a diversified portfolio of loans, spread over it area of operations.
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4. Payment Banks
 Objective of payments banks is to increase financial inclusion by
providing small savings accounts, payment/remittance services to
migrant labour, low income households, small businesses, other
unorganized sector entities and other users by enabling high volume-low
value transactions in deposits and payments/remittance services in a
secured technology-driven environment.
 Payments Banks can accept demand deposits (only current account and
savings accounts). They would initially be restricted to holding a
maximum balance of Rs 100,000 per customer. Based on performance,
the RBI could enhance this limit.
 No credit lending is allowed for Payments Banks
 The float funds can be parked only in less than one year Government
Securities
 Objective of payments banks is to increase financial inclusion by
providing small savings accounts, payment/remittance services to
migrant labour, low income households, small businesses, other
unorganized sector entities and other users by enabling high volume-low
value transactions in deposits and payments/remittance services in a
secured technology-driven environment.
 Payments Banks can accept demand deposits (only current account and
savings accounts). They would initially be restricted to holding a
maximum balance of Rs 100,000 per customer. Based on performance,
the RBI could enhance this limit.
 No credit lending is allowed for Payments Banks
 The float funds can be parked only in less than one year Government
Securities
 Objective of payments banks is to increase financial inclusion by
providing small savings accounts, payment/remittance services to
migrant labour, low income households, small businesses, other
unorganized sector entities and other users by enabling high volume-low
value transactions in deposits and payments/remittance services in a
secured technology-driven environment.
 Payments Banks can accept demand deposits (only current account and
savings accounts). They would initially be restricted to holding a
maximum balance of Rs 100,000 per customer. Based on performance,
the RBI could enhance this limit.
 No credit lending is allowed for Payments Banks
 The float funds can be parked only in less than one year Government
Securities
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5. Brief Summary
Particulars Small Banks Payment Banks
Eligible Entity NBFC, MFI, Cos. Societies, resident
individuals or professionals with 10 or
more years of experience
Pre-payment issuers, NBFC,
Corporates, telecom cos, super
markets, real estate cos. & co-
operatives
NBFC, MFI, Cos. Societies, resident
individuals or professionals with 10 or
more years of experience
Pre-payment issuers, NBFC,
Corporates, telecom cos, super
markets, real estate cos. & co-
operatives
Capital INR 100 Crore INR 100 Crore
Permitted Activity Collect deposits and lend to farmers,
small businesses and industries,
unorganized sector
Payment & remittance services,
demand deposit products to small biz
& low income households
Collect deposits and lend to farmers,
small businesses and industries,
unorganized sector
Payment & remittance services,
demand deposit products to small biz
& low income households
Statutory Compliance Maintain CRR, SLR & 15% capital
adequacy as per Basel I norms
Maintain CRR and investment money
in Government sector
Promoter Holding It should be lowered to below 40% in 3
years and 26% in 12 years
It should be lowered to below 40% in
3 years and 26% in 12 years
FDI As per FDI policy As per FDI policy

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7. Consult the Experts-ECA
Complete assistance for making the necessary filings,
applications etc. for obtaining RBI’s approval to operate as
Small or Payment Banks.
Informal discussion with contact personnel within RBI
so as to perfect the application before the same is
submitted.
Follow up support at various points in time during and
after the pendency of the application so as to ensure that
any additional documents/records requested by RBI is
submitted in a systematic and timely manner.
 To know the further details contact us at
admin@equicorplegal.com
Complete assistance for making the necessary filings,
applications etc. for obtaining RBI’s approval to operate as
Small or Payment Banks.
Informal discussion with contact personnel within RBI
so as to perfect the application before the same is
submitted.
Follow up support at various points in time during and
after the pendency of the application so as to ensure that
any additional documents/records requested by RBI is
submitted in a systematic and timely manner.
 To know the further details contact us at
admin@equicorplegal.com
www.equicorplegal.com

9. www.equicorplegal.com

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