BFSI - Small Finance/Payment Bank Guidelines: Less Punitive; Sector Update :: Edelweiss, link

Please Share::

�� India Equity Research Reports, IPO and Stock News Visit http://indiaer.blogspot.com/ for complete details ��

��

-->

In its endeavour to further financial inclusion, the RBI has announced final guidelines regards architecture of small finance banks (SFB) and payment banks (PB). We believe the critical change in SFBs, viz., removal of geographical restrictions, makes immense sense and will be financially viable too. On the other hand, increase in the PSL requirement (to 75% from 40% earlier) coupled with reduction of promoter holding in a phased manner could act as a deterrent for players. While micro finance institutions (MFIs - particularly SKS Micro) are clear beneficiaries of the initiatives as most of the book qualifies for PSL, most importantly converting into SFB will reduce uncertainty of state regulations (which has capped their valuations) as they will be regulated by the RBI. For payment banks: 1) widening of scope of activity; 2) joint venture (JVs) with SCBs; 3) increase in leverage; and 4) relaxation in deployment are key positives. We foresee a whole new ecosystem emerging for PBs (new structures of JV with SCBs are set to come up).

SFB: Geographical restriction removed but PSL requirement raised

Critical changes (vis-à-vis draft guidelines) include: 1) no geographical restrictions (restricted to contiguous districts in a homogenous cluster of States/Union Territories earlier), which is a clear positive; and 2) higher PSL requirement: 75% (40% earlier), which along with reduction in promoter holding may act as a deterrent. SFBs and NBFC/MFIs cannot co-exist - NBFCs have to compulsorily fold all their businesses into a bank. Proposals from large PSUs and industrial/business houses, including the NBFCs promoted by them, will NOT be entertained.

PB: Operational scope widened; JV with banks among key positives

Critical changes (vis-à-vis draft guidelines) include: 1) increased coverage: a) can issue debit/ATM cards (cannot issue credit cards); b) distribution of MFs and insurance products, among others; and c) undertake utility bill payments; 2) JV with banks - we foresee lot of tie-ups in this structure; 3) relaxed leverage requirement: Maximum leverage at 33.3x (20x earlier); 4) relaxation in deployment: 75% of deposits to be in G-Sec/ T-bill (< 1 year) versus 100% earlier, which will lend fillip to yields.

LINK
https://www.edelweiss.in/research/BFSI--Small-FinancePayment-Bank-Guidelines-Less-Punitive;-Sector-Update/27719.html