Mumbai, Sep 16 (IANS): The Reserve Bank of India (RBI) on Wednesday said it has accorded "in-principal" approval for 10 small finance banks that will focus on small geographies for operations but with a strong capital base.

"The 'in-principle' approval granted will be valid for 18 months to enable the
applicants to comply with the requirements under the guidelines and fulfil other
conditions as may be stipulated by the RBI," the central bank said in a statement.

Those selected are: Au Financiers, Capital Local Area Bank, Disha Microfin, Equitas Holdings, ESAF Microfinance, Janalakshmi Financial Services, RGVN (North East) Microfinance, Suryoday Micro Finance, Ujjivan Financial Services and Utkarsh Micro Finance.

Finance Minister Arun Jaitley had said in his budget speech last July that a structure will be put in place for continuous authorisation of universal banks in the private sector.

"RBI will create a framework for licensing small banks and other differentiated banks. Differentiated banks serving niche interests, local area banks, payment banks etc. are contemplated to meet credit and remittance needs of small businesses, unorganised sector, low income households, farmers and migrant work force,” he had said.

The selection of these small banks was on the basis of the recommendations from three different committees, backed by a detailed case study for each applicant, including that by an External Advisory Committee chaired by former deputy governor Usha Thorat.

"An important factor was proposed reach into unbanked areas and underserved sections of the population," the central bank said.

"Going forward, the Reserve Bank intends to use the learning from this licensing
round to appropriately revise the guidelines and move to giving licences more
regularly, that is, virtually 'on tap'."

In 2009, a Committee on Financial Sector Reforms under Raghuram Rajan, now the RBI governor, had examined the relevance of small banks in the Indian context. The panel felt there was sufficient change in the environment to experiment with small banks.

It recommended the entry of private well-governed deposit-taking small finance banks to offset their higher risk from being geographically focussed, by requiring a higher capital and strict norms.

Draft guidelines for licensing of small finance banks were released for public comments on July 17 last year and based on the comments, the final norms for licensing of small finance banks were issued on Nov 27.