RBI to set ball rolling on payments banks

The Reserve Bank of India will soon discuss with stakeholders the possibility of allowing “payments banks” in the country, Governor Raghuram Rajan has said.

A payments bank is different from a commercial bank. It can offer deposits and remittances, but will be constrained to invest all its funds in safe instruments such as Government securities. There are suggestions for setting up a Post Bank as a payments bank, making use of post office outlets to raise and collect deposits.

“If payments banks are successful, they will allow us to steadily reduce some of the obligations we impose on commercial banks,” Rajan said in a lecture organised by the Competition Commission of India (CCI) here on Tuesday.

For instance, as payments banks hold Government securities for liquidity purposes, the RBI can reduce the quantity of Government securities that the central bank asks commercial banks to hold as part of statutory liquidity ratio, he pointed out.

There is no agreed stance of the RBI as regards allowing “payments banks” with some honchos believing that such banks will be unviable, and some others contending that it will skim the cream of the banking business away from regular commercial banks.

Rajan added that the RBI was committed to freeing up entry into banking and would announce a more regular process of giving licences — what has been termed licences on tap.

The RBI can take more of a chance with new players if they get the licence to open only a small bank or to conduct only one segment of the banking business, Rajan said.

“The key in any new structure is that there should be no arbitrage possibilities hurting the current banking system.”

The Governor added that the RBI would soon bring in new regulations on business correspondents to help deepen the banking services penetration in the country.

Meanwhile, on the PJ Nayak Committee report on improving governance in bank boards, Rajan said the report should not be seen as one pushing for privatisation of banks.

This report is facing stiff criticism from bank unions, which contend that the recommendations are aimed at privatisation of the banking industry through relinquishment of ownership of the Government.

PTI report adds: Pitching for greater operational flexibility to public sector banks, the Reserve Bank Governor said they can become more competitive by distancing themselves from government influence. “If public sector banks become competitive, and especially if they do so by distancing themselves from the influence of the government without sacrificing their ‘public’ character, they will be able to raise money much more easily from the markets.

“Indeed, the better performers will be able to raise more, unlike the current situation where the not so good performers have a greater call on the public purse. Competition will improve efficiency,” he said.