RBI to issue small finance bank licences next month

Speaking at the same time, ICICI Bank’s CEO Chanda Kochhar said on transmission of RBI’s policy rate cuts into lending rates that there can never be an equal cut at the bank’s end.

Reserve Bank of India Governor Raghuram Rajan and State Bank of India Chairman Arundhati Bhattacharya on Thursday took opposing stands on the impact of payments banks on the traditional lenders. “Payments banks can’t do some thing universal banks can do”.

Out of these, RBI yesterday granted “in principle” approval for payments bank to 11 entities, including big names like Reliance Industries, Aditya Birla Nuvo and Tech Mahindra, as also Airtel and Vodafone. “What if they go for poaching rates, then numerous commercial banks could lose a portion of the deposits which are relatively lower priced so that will take away the ability to transmit rates and give further loans at lower rates”, Bhattacharya said in a conversation with the RBI Governor at the SBI Banking & Economic Conclave.

Small finance banks, with an objective to boost financial inclusion, are however more similar to existing commercial lenders and will undertake basic banking activities of accepting deposits and lending to under-served sections of society. 1 lakh. However, they will be authorized to issue ATM cards and also distribute mutual fund and insurance products.

“Universal banks have to provide full service. Which is why we keep emphasising the fact that if it is an NPA, it does not mean you can’t lend to it”, Rajan said.

Governor Raghuram Rajan, meanwhile, allayed fears that the new banks will eat into the business of existing banks.

He said new institutions like payment banks and small finance banks would be in the market.

He also thanked Nachiket Mor for the work he has done on the PBs and quipped that the new banks can also be called “Mor Banks”.

“You may see rural demand coming back more strongly, and that would be a very tremedous bonus to the economy compared to we are”, Rajan said at an industry event.

“If Chinese depreciation holds at the current level, it’s not something we need to be overly concerned about”. In comments that came two days after Moody’s Investors Service lowered its India growth forecast on poor monsoon concerns, Rajan said the sowing is good and he hopes that the rains do not deteriorate.