What are payment bank and small finance bank upsc?
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There are two kinds of banking licences that are granted by the Reserve Bank of India – Universal Bank Licence and Differentiated Bank Licence. Differentiated Banks (niche banks) are banks that serve the needs of a certain demographic segment of the population. Small Finance Banks and Payment Banks are examples of differentiated banks in India. Custodian Banks and Wholesale and Long-Term Finance banks (WLTF) are newly proposed differentiated banks.
Differentiated Banks vs Universal Banks
Differentiated banks are distinct from Universal Banks (Eg: Commercial Banks like SBI, HDFC, ICICI etc) as they are infused as niche segments. Niche banks typically target a specific market and tailor the bank’s operations to this target market’s preferences. The differentiation could be on account of capital requirement, the scope of activities or area of operations. As such, they offer a limited range of services/products or function under a different regulatory dispensation.
Background of Small Finance Banks and Payment Banks
The concept of differentiated banks is not entirely new. In fact, and in a sense, the Urban Co Operative Banks (UCBs), the Primary Agricultural Credit Societies (PACS), the Regional Rural Banks (RRBs) and Local Area Banks (LABs) could be considered as differentiated banks as they operate in localized areas.
But the present concept of differentiated banks can be said as first discussed in 2007. Thereafter, the concept was once again discussed in a Paper “Banking Structure in India – The Way Forward”, brought out by the Reserve Bank in August 2013. RBI granted in-principle approvals to 11 entities for setting up payments banks (PBs) in August 2015 and 10 for Small Finance Bank (SFB) in September 2015.
Differentiated Banks vs Universal Banks
Differentiated banks are distinct from Universal Banks (Eg: Commercial Banks like SBI, HDFC, ICICI etc) as they are infused as niche segments. Niche banks typically target a specific market and tailor the bank’s operations to this target market’s preferences. The differentiation could be on account of capital requirement, the scope of activities or area of operations. As such, they offer a limited range of services/products or function under a different regulatory dispensation.
Background of Small Finance Banks and Payment Banks
The concept of differentiated banks is not entirely new. In fact, and in a sense, the Urban Co Operative Banks (UCBs), the Primary Agricultural Credit Societies (PACS), the Regional Rural Banks (RRBs) and Local Area Banks (LABs) could be considered as differentiated banks as they operate in localized areas.
But the present concept of differentiated banks can be said as first discussed in 2007. Thereafter, the concept was once again discussed in a Paper “Banking Structure in India – The Way Forward”, brought out by the Reserve Bank in August 2013. RBI granted in-principle approvals to 11 entities for setting up payments banks (PBs) in August 2015 and 10 for Small Finance Bank (SFB) in September 2015.
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