Small finance banks seek relaxed norms to meet financial inclusion goals

With the small finance banks (SFBs) scrambling to find unbanked areas on account of the Reserve Bank of India proposing to widen the definition of banking outlets by including banking correspondents in it, SFBs have asked RBI for relaxations of norms. 

SFBs have proposed that once an unbanked area is identified, RBI should be notified about it, and later if any bank opens an outlet through a banking correspondent (BC) or otherwise in the area, it should be counted as a branch in an unbanked area for the SFB, said a spokesperson of a small finance bank. 

While SFBs require prior approval from RBI for opening bank branches, universal banks do not require such permission for roll out a branch in the unbanked rural areas. Hence, SFBs are facing challenges in finding unbanked areas, to meet the target of having 25 per cent of branches in unbanked areas. 

In its recent bi-monthly monetary policy review, RBI said it will release detailed guidelines on banking outlets soon. These will supersede the branch licensing guidelines in force.

“Going by the recent report of RBI on banking outlets, it is getting very difficult for SFBs to meet the target for having 25 per cent of branches in unbanked areas. We are expecting a revised policy. Currently, there are instances that by the time we are identifying and opening a branch, another bank has already opened a BC outlet or branch,” said Govind Singh, managing director and chief executive officer, Utkarsh Small Finance Bank.  

Earlier, an unbanked area would mean a rural centre that does not have a brick-and-mortar structure of any scheduled commercial bank. In October 2016, RBI released a report of the Internal Working Group (IWG) on Rationalisation of Branch Authorisation Policy where it said the recommendations focus on broadening the current framework to include all “banking outlets” which are fixed point locations. In the report, a “banking outlet” has been defined as “a fixed point service delivery unit, manned by either bank’s staff or its business correspondent where services of acceptance of deposits, encashment of cheques or cash withdrawal or lending of money are provided for a minimum of four hours a day for at least five days a week.

“In the first year we would be able of having 25 per cent of branches, but from the second year, to maintain that (pace) will be a difficult task,” said R Baskar Babu, managing director, Suryoday Small Finance Bank.

In the past few years, the number of unbanked areas has come down. According to a 2015 report by Internet and Mobile Association of India and Payments Council of India, prepared by PricewaterhouseCoopers India, the country’s unbanked population more than halved, to 233 million in 2015 from 557 million in 2011. 

In 2014 — the year Prime Minister Narendra Modi launched Pradhan Mantri Jan Dhan Yojana – the unbanked population fell by 182 million. RBI said banking outlets opened in north-eastern states and in Left-wing extremism-affected districts would be treated as banking outlet in an unbanked rural centre.