Banking wrap: RBI issues draft norms for SFB licensing; govt asks lenders to use NCLT as last resort

The Reserve Bank of India (RBI) has put out draft norms for ‘on tap’ licensing of Small Finance Banks (SFBs).

It has allowed existing non-banking financial companies (NBFCs), microfinance institutions, payment banks and Urban Co-operative Banks to apply for the SFB license, upon certain conditions.

RBI has made it clear that it will prefer applications that come with a time frame for listing plans and focus financial inclusion in certain unbanked areas of the country.

RBI on September 13 released draft norms for ‘on tap’ licensing of SFBs, which will allow applicants to approach the banking regulator on an ongoing basis. “After the initial stabilisation period of five years, and after a review, RBI may liberalise the scope of activities of the small finance banks,” the central bank said.

Punjab National Bank (PNB), the anchor bank for amalgamation with Oriental Bank of Commerce (OBC) and United Bank of India, is planning to create new business verticals and open up growth options for employees of all the merging banks after consolidation.

There will be no layoffs or Voluntary Retirement Scheme (VRS) offers due to the merger, the bank said. The bank has also identified 23 internal working groups and will soon float Request for Proposals (RFPs) to appoint a consultant for restructuring products and services that are best suited for customers of the merged entity.

Banks should feel free to take decisions in the interest of the country without the fear of being harassed by investigative agencies in future, Minister of State for Finance Anurag Thakur said on September 11. Thakur was addressing senior banking officials at the annual general meeting of Indian Banks’ Association in Mumbai.

With the government deciding to merge 10 public sector banks into four as part of its plan to create larger and globally competitive banks, retail customers will have to take note of some changes.

Merging banks are Oriental Bank of Commerce, United Bank of India, Syndicate Bank, Andhra Bank, Corporation Bank and Allahabad Bank. If you have an account in any of these banks, then you will have to track the following changes going ahead.

India’s shadow banking sector may continue to witness slower credit growth, higher pressure on margins and lesser fund raising avenues as the outlook for the sector remains weak. India Ratings and Research has revised its sector outlook on NBFCs from ‘stable’ to ‘negative.’

RBI’s mandate that requires banks to link loans to an external benchmark, could increase the risk of asset-liability mismatch (ALM) in absence of a liquid derivatives market in the country.

The interest rate under the external benchmark will have to be reset at least once in three months, while the RBI reviews policy rates every two months.

This may lead to ALM risk in banks’ books if they are unable to address the interest rate risk between floating-rate loans and fixed-rate deposits.