i nc lu s i ve f i nanc e i nd i a re port 2014
136
A
PPENDIX
5.2
Small Banks: Comparison of Major Policy Recommendations
Sl.
No
Broad Policy
Element
Draft Small Bank Guidelines
(July 2014)
Local Area Bank Guidelines
(June 2014)
Raghuram Rajan Committee
1.
Objective
To further financial inclusion by
providing savings to under- and
un-served sections and credit to
small businesses, small farmers,
micro and small industries and other
unorganized entities
To cater to credit needs of local
people and provide efficient
and competitive financial
intermediation in the area
to increase financial inclusion by
reaching out to poorer households
and local small and medium
enterprises; may graduate to serve
other clients
2.
Promoters
Individuals with 10 years of banking/
finance experience, companies and
societies, NBFCs, MFIs and LABs
Individuals, corporate entities,
societies, NRI promoters (share
less than 20%)
MFLs, private entities, community
financial institutions; track record of
promoters important
3.
Minimum
Capital
Rs. 100 crore
INR 5 crore raised to Rs. 25
crore (2002)
Initial capital low consistent with
intent
4.
Minimum
CAR
15% of RWA on continuous basis
8% raised to 15% (2002)
More conservative because they
operate in small geographies And
lend to riskier businesses
5.
Area of
Operation
Restricted contiguous districts in
homogenous cluster of States/UTs
3 contiguous districts
‘Local’, area of choice given the
bank
6.
Branches
Branch Expansion for initial 3 years
by prior approval by RBI; 25% of
branches in unbanked rural centers
Only one urban branch in
a district(Ramachandran
committee) suggested 1 urban
branch per 10 rural branches)
Restrict initial license to certain no.
branches and asset size; and remove
restrictions after performance review
7.
Ownership Promoter contribution at least
40%; (locked in for 5 yrs.); Excess
promoter shareholding to be brought
down to 40% in 3 years, 30% in 10
years and 26% in 12 years; Foreign
shareholding as per FDI policy; Non
promoter entities not permitted
shareholding in excess of 10% of
voting equity capital
Promoters min 40% capital
(min of Rs. 2 crore); non-
promoter holdings capped
at 10% of share capital;
Individual voting rights capped
at 10%
Could be majority owned by
a single promoter; Ensuring
appropriate incentives
8.
Business/
products and
services
Basic banking activities—acceptance
of deposits and credit to small
businesses, small farmers, micro
and small industries and other
unorganized sector entities; Other
simple financial services with
prior approval of RBI: Cannot set
up subsidiaries for non-banking
activities
Focus on local customers;
Lending expected to
agriculture and allied activities,
SSI, agro-industrial activities,
trading activities and the
non-farm sector
Comprehensive suite of financial
services (Credit, savings, insurance,
remittance and investments)
9.
Priority sector
norms
As applicable to existing domestic
banks
Priority sector lending targets
—40% of net bank credit;
25% of PSL (10% of NBC) to
weaker sections
