BSE, NSE eye setting up small banks
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NEW DELHI: Bombay Stock Exchange and the National Stock Exchange are looking to set up small banks in the country once the Reserve Bank of India opens the window for applications.
The move will help the two exchanges, which have cash transactions running into thousands of crores, manage some of the funds, but will come as bad news for the existing players, such as HDFC Bank, which manage this amount and benefit by way of low cost of funds.
On Thursday, RBI governor Raghuram Rajan had said that the regulator is set to issue guidelines for fresh small banks and is expected to invite proposals by the end of the month.
But the exchanges have been working on the proposal for the past few months. Sources said the BSE board discussed the proposal, although some of the directors had certain reservations. The proposal may be headed for discussions again once the RBI issues the final norms, said a source privy to the talks.
Similarly, the NSE is learnt to have discussed the plan, although the exchange declined to comment on the issue. BSE spokesperson could not be reached for comment.
Sources said the proposals are only at the discussion stage and a final decision on seeking a licence will be taken after the guidelines are released.
Experts, however, said while exchanges may be drawing up plans to set up banks, there is no guarantee that the RBI will issue licenses given that the proposed banks will handle cash that is generated during a related entity's business. They said the regulator will decide on the proposal based on how the bank is structured.
In addition, they said in several developing countries, including India, banks have joined hands to set up a stock exchange but it is rare for stock exchanges to set up banks.
In the past, the RBI has been very selective in issuing bank licences and has hand-picked the promoters who have been given bank licences. But, with small banks - which are now expected to be allowed to get a pan-India footprint - and payment banks, the RBI is trying to deepen the reach and is expected to be more lenient.
In the draft guidelines issued by the RBI, payments banks and small banks were proposed to be niche or differentiated banks to push financial inclusion. The RBI had proposed that the presence of small banks be restricted to contiguous districts in a homogeneous cluster of states or UTs to give them a local feel. But this rule is proposed to be changed.
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