The Reserve Bank of India (RBI) on Thursday has issued new guidelines for licensing of payments banks and small finance banks in the private sector.

Existing non-bank Pre-paid Payment Instrument (PPI) issuers, Non-Banking Finance Companies (NBFCs), corporate Business Correspondents (BCs), mobile telephone companies, super-market chains, companies, real sector cooperatives; that are owned and controlled by residents; and public sector entities may apply to set up payments banks, the RBI said.

Resident individuals/ professionals with 10 years of experience in banking and finance; and companies and societies owned and controlled by residents will be eligible to set up small finance banks, it said.

Existing Non-Banking Finance Companies (NBFCs), Micro Finance Institutions (MFIs), and Local Area Banks (LABs) that are owned and controlled by residents can also opt for conversion into small finance banks. Promoter/promoter groups should be ''fit and proper'' with a sound track record of professional experience or of running their businesses for at least a period of five years in order to be eligible to promote small finance banks, RBI said.

Payments banks:

Payments bank will initially be restricted to holding a maximum balance of Rs 100,000 per individual customer. Apart from amounts maintained as Cash Reserve Ratio (CRR) with the Reserve Bank on its outside demand and time liabilities, it will be required to invest minimum 75% of its demand deposit balances in Statutory Liquidity Ratio(SLR) eligible Government securities/treasury bills with maturity up to one year and hold maximum 25% in current and time/fixed deposits with other scheduled commercial banks for operational purposes and liquidity management.

Further, the minimum paid-up equity capital for payments banks shall be Rs 1 billion and the payments bank should have a leverage ratio of not less than 3%, i.e., its outside liabilities should not exceed 33.33 times its net worth (paid-up capital and reserves).

Also, the promoter's minimum initial contribution to the paid-up equity capital of such payments bank shall at least be 40% for the first five years from the commencement of its business.

The foreign shareholding in the payments bank would be as per the Foreign Direct Investment (FDI) policy for private sector banks as amended from time to time.

The operations of the bank should be fully networked and technology driven from the beginning, conforming to generally accepted standards and norms. Also, the bank should have a high powered Customer Grievances Cell to handle customer complaints.

Small finance banks:
The small finance bank shall primarily undertake basic banking activities of acceptance of deposits and lending to unserved and underserved sections including small business units, small and marginal farmers, micro and small industries and unorganised sector entities.

The minimum paid-up equity capital for small finance banks shall be Rs 1 billion, the RBI said. The promoter''s minimum initial contribution to the paid-up equity capital of such small finance bank shall at least be 40% and gradually brought down to 26% within 12 years from the date of commencement of business of the bank.

Also, the foreign shareholding in the small finance bank would be as per the Foreign Direct Investment (FDI) policy for private sector banks as amended from time to time.

The small finance bank will be subject to all prudential norms and regulations of RBI as applicable to existing commercial banks including requirement of maintenance of Cash Reserve Ratio (CRR) and Statutory Liquidity Ratio (SLR). No forbearance would be provided for complying with the statutory provisions.

The small finance banks will be required to extend 75% of its Adjusted Net Bank Credit (ANBC) to the sectors eligible for classification as priority sector lending (PSL) by the Reserve Bank. At least 50% of its loan portfolio should constitute loans and advances of upto Rs 25 lakh.