The Reserve Bank of India granted the consortium of Centrum Financial Services and BharatPe a Small Finance Bank license on Tuesday. The new unit was founded as “Unity Small Finance Bank” and Centrum’s MSME and microfinance business is to be merged into it.
“After a gap of almost 6 years, a new banking license has been granted and we would like to thank RBI for the confidence shown in the capabilities of Centrum and BharatPe,” said Centrum Capital in a regulatory motion on Tuesday.
A small financial banking license is vital for payment banks. In contrast to payment banks, the small financial bank can offer its customers microloans and issue credit cards as well as accept deposits of over Rs 1 lakh.
In short, it is a way for payment banks to explore an actual business model that is based on lending and that they can start making money on.
Current standards for payment banks limit deposits to Rs 1 lakh per customer and prohibit them from lending. Converting to a small financial bank will allow them to start lending and potentially increase their profitability. So far, payment banks have only been able to offer users a savings account and a transfer service, among other things.
The RBI had in March of this year set up a committee to evaluate applications for universal and small financial banks. This happened after a working group set up by the RBI recommended last November that payment banks could apply for conversion into small financial banks after three years of activity.
Due to the strict norms for payment banks, some of them have buckled their seat belts and closed the store. In 2015, the RBI approved eleven payment banks, five of which have already closed. Airtel Payments Bank, India Post Payments Bank, Fino Payments Bank, Jio Payments Bank, Paytm Payments Bank and NSDL Payments Bank are currently the remaining payment banks.
Even of these six remaining payment banks, Fino Payments Bank was added to RBI’s second schedule in February, making them one scheduled payments bank and enable him to conduct credit transactions. India Post Payments Bank is also a scheduled payments bank.