Reserve Bank of India is likely to allow small finance banks to go pan-India provided they cater only to small borrowers. RBI will issue guidelines for their licences by the end of the month.
Governor Raghuram Rajan said the central bank has in a way accepted the suggestion of more flexibility for geographical reach of small banks given by microfinance institutions.
“But the key is that these should be focused on small lending. These would be all-India institutions, they would be allowed to take deposits, they would lend predominantly to small entities,” said Rajan on Thursday.
Rajan also said the RBI expects many microfinance companies to convert themselves into small banks.
MFIs have expressed interest in converging themselves into small banks as that would allow them to access public deposits while reaching out to small borrowers.
Grameen Financial Services was one of the MFIs that sought more flexibility in geographical reach.
Rajan said the RBI has sought the government’s comments on the draft guidelines and hopes to call for applications for licences by end of November.
RBI released draft guidelines for licensing payment banks and small finance banks in July.
Under the draft norms, it is proposed that payment banks be allowed only to take deposits while small finance banks be allowed to lend, but only to micro-borrowers, small and medium enterprises. Also small banks would be restricted to a few districts in terms of operations.
On payment banks, Rajan said these entities would provide deposit products and accounts to the people who are excluded from the mainstream banking. “We visualise mobile companies, companies having large presence in rural areas and even the post office coming into these licences,” Rajan said.
Rajan warned that institutions must not look for making a “fortune” but only a “reasonable profit” from financial inclusion.