The Reserve Bank of India (RBI), the country’s central banking authority, recently commissioned an investigative panel, the Committee on Comprehensive Financial Services for Small Businesses and Low Income Households (the Committee), to create a policy framework for achieving financial inclusion in India and to make formal recommendations on how to implement the framework. The Committee reportedly has recommended relaxing the capitalization requirements for wholesale investment and commercial banks seeking licensing for the first time from the current minimum capital requirement of INR 5 billion (USD 81 million) to INR 500 million (USD 8.1 million). The Committee also recommended issuing banking licenses to nonbank institutions such as mobile phone companies and consumer goods retailers.
The Committee further recommended the gradual phasing out of other regulatory requirements regarding financial institutions’ hours of operation, minimum service offerings, employee service hours and ownership structure. These compliance measures, in addition to the capital requirements, reportedly were presenting undue obstacles for institutions seeking new banking licenses.
RBI reported total reserves of USD 263 billion as of February 14, 2014.
By A’kos Szebeni, Research Associate
About Reserve Bank of India (RBI)
Established in 1935, the Reserve Bank of India (RBI) undertakes consolidated supervision of the financial sector comprising commercial banks, financial institutions and non-banking finance companies (NFBCs). The current focus of RBI is to supervise financial institutions, consolidate accounting standards, resolve legal issues in cases of banking fraud, monitor non-performing assets and supervise the rating model for the banking sector. In 1979, the National Bank for Agriculture and Rural Development (NABARD) was formed at the behest of RBI to provide regulatory oversight to regional rural banks (RRBs) and to promote the development of agricultural lenders: tasks that had been the responsibility of RBI. While non-banking financial companies such as for-profit microfinance institutions operate under RBI regulations, the responsibility for inspecting agricultural lenders, RRBs, state cooperative banks, district central cooperative banks and state cooperative agricultural and rural development banks was transferred to NABARD. RBI maintains these responsibilities for for-profit MFIs. Although RBI was originally the parent organization of NABARD and until October 2010 held a 72.5-percent stake in the outfit, as of March 31, 2013, RBI owns a 0.5-percent stake in NABARD. RBI reported total reserves of USD 263 billion as of February 14, 2014.
Sources and Additional Resources:
The Economic Times, “Financial inclusion push may mean bank licence with less capital,” http://articles.economictimes.indiatimes.com/2014-01-22/news/46462726_1_financial-inclusion-priority-sector-sponsor-bank
MicroCapital, September 25, 2013, “Bank of Ghana Increases Liquidity Requirement for Microfinance Financial Institutions,” https://www.microcapital.org/microcapital-brief-bank-of-ghana-increases-liquidity-requirement-for-microfinance-financial-institutions/
MicroCapital, July 26, 2013, “Bank of Ghana (BOG) to Raise Minimum Capital Requirement for Microfinance Institutions (MFIs) to $240k,” https://www.microcapital.org/microcapital-brief-bank-of-ghana-bog-to-raise-minimum-capital-requirements-for-microfinance-institutions-mfis-to-240k/
MicroCapital, March 11, 2013, “Reserve Bank of India (RBI) Releases Regulations Governing New Bank Licenses,” https://www.microcapital.org/microcapital-brief-reserve-bank-of-india-rbi-releases-regulations-governing-new-bank-licenses/
MicroCapital, February 25, 2013, “Reserve Bank of India (RBI) May Consider Raising Margin Cap on Microloans if MFIs Relinquish Priority-Sector Status,” https://www.microcapital.org/microcapital-brief-reserve-bank-of-india-rbi-may-consider-raising-margin-cap-on-microloans-if-mfis-relinquish-priority-sector-status/
MicroCapital, January 25, 2013, “Microcredit Regulatory Authority (MRA) of Bangladesh Plans to Lower 27% Microcredit Interest Rate Cap,” https://www.microcapital.org/microcapital-brief-microcredit-regulatory-authority-mra-of-bangladesh-plans-to-lower-27-microcredit-interest-rate-cap/
MicroCapital, December 19, 2012, “After Reserve Bank of India Caps Microfinance Institution Interest Rates at 26%, Investors Eye Non-Banking Financial Companies,” https://www.microcapital.org/microcapital-brief-after-reserve-bank-of-india-caps-microfinance-institution-interest-rates-at-26-investors-eye-non-banking-financial-companies/
MicroCapital, November 18, 2010, “Bangladesh Microcredit Regulatory Authority (MRA) to Restrict Fees, Cap Microloan Interest Rates at 27%, Discourage Flat Interest Rates,” https://www.microcapital.org/microcapital-brief-bangladesh-microcredit-regulatory-authority-mra-to-restrict-fees-cap-microloan-interest-rates-at-27-discourage-flat-interest-rates/
MicroCapital Universe Profile: Reserve Bank of India (RBI), https://www.microcapital.org/microfinanceuniverse/tikiindex.php?page=Reserve+Bank+of+India+%28RBI%29
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