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Payment banks are feeders, not threat, to big banks: Rajan

Quashing fears that the new kid on the bloc — payment banks — will pose a threat to universal banks, Reserve Bank chief Raghuram Rajan clarified they will not compete but act as feeders to their bigger peers.

Quashing fears that the new kid on the bloc — payment bank s — will pose a threat to universal banks, Reserve Bank of India chief Raghuram Rajan said they will not compete but act as feeder to their bigger peers. The RBI on Wednesday gave in principle nod to 11 entities for setting up payment banks .

In a conversation between Rajan and State Bank of India ( SBI ) chairperson Arundhati Bhattacharya, the former said payment banking is one of the most exciting space in the system which will reduce the cost of accessing banks. He also announced the possibility of issuing licences to smaller banks next month.

When Bhattacharya asked if small deposits of bigger banks will be at risk, the governor said on the contraryuniversal banks will become more competitive. The idea behind payments banks is to cut preemptions for other banks. Also, banks have the flexibility with SLR, which has been coming down steadily while payment banks are required to keep their money in government securities. “But we need buyers for Gsecs as banks move out,” he said.

Two of the most powerful banking personalities also agree that the Indian economy is picking up. Both Rajan and Bhattacharya highlighted that rural demand pick up can be seen if monsoon keeps up the currect pace.
Listed as the 30th most powerful woman 2015 in the world by Forbes, Bhattacharya suggested devising a way to incentivise banks for providing additional capital to an NPA account, without which it adds stress on the balance sheet.

Meanwhile, questioning the true strength of Chinese economy, the governor said we shouldn’t be concerned if yuan depreciation holds at current levels.

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