- 1 Differentiated Banks
- 2 FAQs Differentiated Banks
- 2.1 What is the concept of differentiated banking, and what are its key components?
- 2.2 What are Small Finance Banks (SFBs), and what are their eligibility criteria and functions?
- 2.3 What are Payment Banks, and how do they differ from SFBs?
- 2.4 What are the restrictions and eligibility criteria for Payment Banks?
- 2.5 What is the significance of differentiated banks, and how does it contribute to financial inclusion and innovation in the banking sector?
- 3 More Articles
Differentiated Banks
Concept of differentiated banks was introduced in 2013 following Recommendations from the Nachiket Mor Committee; Cater to specific Customer Segments.
- Small Finance Bank: Established on recommendations of Nachiket Mor Committee; Licensed by the RBI under the Banking Regulation Act, 1949 and governed by the RBI Act, 1934.
- Individuals, corporates, trusts, societies, existing NBFCs, Micro Finance Institutions
- (MFIs), and Local Area Banks (LABs) can all become promoters of SFBs.
- 75% of SFBs’ loans must be directed towards priority sectors and at least 50% of their loans and advances must be below 25 lakh.
- Allowed to take deposits of any amount.
- Can provide remittances services as well as credit cards; Allowed to issue ATM or debit cards.
- Can accept NRI deposits.
- Payment Banks: Established on recommendations of Nachiket Mor Committee; Licensed under Banking Regulation Act, 1949
- Minimum paid up capital required is 100 crore and the promoter’s stake should remain at least 40% for the first five years.
- Existing Prepaid Payment Instrument (PPI) issuers or businesses like mobile telephone companies, Microfinance Institutions (MFIs) and Small Finance Banks (SFBs) can also establish Payments Banks.
- Do not provide credit services like loans and credit cards; Provide both current accounts and savings accounts; Allowed to issue ATM /debit cards.
- They accept demand deposits (Only up to 2 lakh per individual customer) but cannot accept time deposits and Non-Resident Indian (NRI) deposits.
- Can distribute products like mutual funds, insurance, third party loans.
- Can apply for conversion into small finance banks (SFBs) after five years of operation.
- FDI is allowed in payment banks. They cannot set up subsidiaries to undertake non-banking activities.
FAQs Differentiated Banks
What is the concept of differentiated banking, and what are its key components?
Differentiated banks, introduced in 2013 based on recommendations from the Nachiket Mor Committee, involves catering to specific customer segments. It includes the establishment of Small Finance Banks (SFBs) and Payment Banks, each with unique features and target markets.
What are Small Finance Banks (SFBs), and what are their eligibility criteria and functions?
SFBs are licensed by the RBI under the Banking Regulation Act of 1949 and are required to direct 75% of their loans towards priority sectors. They can accept deposits of any amount, provide remittance services, issue ATM or debit cards, and accept NRI deposits. Individuals, corporates, trusts, and existing financial entities like NBFCs and MFIs can become promoters of SFBs.
What are Payment Banks, and how do they differ from SFBs?
Payment Banks, also established on recommendations from the Nachiket Mor Committee, focus on providing payment and remittance services. They do not offer credit services like loans and credit cards but provide both current and savings accounts. Payment Banks accept demand deposits up to Rs 2 lakh per individual customer and can distribute products like mutual funds and insurance. Existing entities like prepaid payment instrument issuers, mobile telephone companies, MFIs, and SFBs can establish Payment Banks.
What are the restrictions and eligibility criteria for Payment Banks?
Payment Banks require a minimum paid-up capital of Rs 100 crore, and the promoter’s stake must remain at least 40% for the first five years. They cannot accept time deposits or Non-Resident Indian (NRI) deposits, but they can apply for conversion into SFBs after five years of operation. FDI is allowed in Payment Banks, but they cannot set up subsidiaries for non-banking activities.
What is the significance of differentiated banks, and how does it contribute to financial inclusion and innovation in the banking sector?
Differentiated banks, through the establishment of SFBs and Payment Banks, aims to cater to specific customer segments, especially those in underserved areas. By offering tailored services and innovative products, differentiated banks contribute to financial inclusion and promote competition and innovation in the banking sector.
