Structure of Differentiated Banks in India

Structure of Differentiated Banks in India

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There are two sorts of financial licenses that are allowed by the RBI - Universal Bank and Differentiated Bank Permit License. Niche or differentiated banks are financial institutions that cater to the requirements of a specific demographic group. In India, distinct banks include payment banks and small finance banks. Newly proposed differentiated banks include Wholesale and Long-Term Finance banks (WLTF) and Custodian Banks. Universal banks are distinct from differentiated banks (for example: Commercial banks like SBI, HDFC, ICICI, and others) because they are used for specific niches.

The operations of niche banks are typically tailored to the preferences of a specific market. The difference could be caused by the need for capital, the scope of activities, or the area of operations. As a result, they either operate under a different regulatory regime or provide a limited range of services and products.

Differentiated banks are not a brand-new idea. Because they operate in localized areas, the Urban Cooperative Banks (UCBs), the Primary Agricultural Credit Societies (PACS), the Regional Rural Banks (RRBs), and the Local Area Banks (LABs) could in fact be considered distinct banks. However, the current concept of distinct banks was first discussed in 2007. In August 2013, the Reserve Bank published a paper titled "Banking Structure in India – The Way Forward" in which the concept was once more discussed. In August 2015, the RBI granted in-principle approvals to 11 entities for the establishment of payments banks (PBs), and in September 2015, it granted approvals to 10 entities for the Small Finance Bank (SFB).

Small Finance Banks, or SFBs, are specialty banks that cater to the requirements of a specific demography The establishment of small finance banks will aim to increase financial inclusion through the provision of credit to small businesses and the provision of savings vehicles. marginal and small farmers; small and micro businesses; and other entities in the sector that are not organized, through low-cost, high-tech operations. The NachiketMor committee on financial inclusion recommended SFBs.