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India Mobile-Phone Companies, Supermarkets May Soon Start Banks

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July 17 (Bloomberg) -- India proposed allowing mobile telephone companies and supermarket chains to set up payment banks to provide financial products to the tens of millions of people in the nation who lack direct access to them.

The Reserve Bank of India will allow “fit and proper” companies with successful track records of at least five years in running their business to form small banks and payment banks, according to draft rules posted on its website today.

Such companies would help to tap rural savings in the South Asian economy where the World Bank estimates that just 35 percent of adult population have accounts with financial institutions. India has struggled to spur the expansion of banking services for the more than 800 million of its population living in the countryside.

Small banks would provide a “whole suite of basic banking products” such as deposits and loans in a limited area, the RBI said today. Non-banking finance companies and micro finance institutions with at least 10 years experience also would be eligible to set up small banks.

Payment banks would provide a “limited range of products,” including demand deposits and the transfer of funds, in a wider area, the RBI said.

Both small and payment banks would have minimum paid-up capital of 1 billion rupees ($16.6 million), the central bank proposed. The shareholding of the promoters would have to be brought down to 40 percent within three years and 26 percent with in 12 years from the start of banking business.

India has 26 state-run banks that accounted for 76 percent of loans outstanding as of March 2013, RBI data show. The country’s 20 private lenders, led by ICICI Bank Ltd., held more than 19 percent of bank credit, while 43 foreign banks accounted for the rest, the data show.

India has a population of about 1.2 billion people.

To contact the reporter on this story: Anto Antony in Mumbai at aantony1@bloomberg.net

To contact the editors responsible for this story: Chitra Somayaji at csomayaji@bloomberg.net Dick Schumacher

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