The Reserve Bank approval to 11 businesses to launch a new type of mobile-focused payments bank is a major breakthrough in the banking sector, but it could potentially pose risks to their market share over the long term, says Fitch Ratings.
In a major reform in the banking sector, RBI on Wednesday gave 'in-principle' approval to 11 entities, including Reliance Industries, Aditya Birla Nuvo, Vodafone and Airtel, to set up payments banks and proposed such licences 'on tap' in future.
"The 'in-principle' approval granted will be valid for a period of 18 months, during which time the applicants have to comply with the requirements under the guidelines and fulfil the other conditions as may be stipulated by the Reserve Bank.
Commenting on the development, the rating agency said, "These new banks will be allowed to take deposits up to Rs 100,000 (USD1,530) and transfer funds. Their focus on smaller deposit holders and mobile banking will add to competitive pressures for public banks, and could potentially pose risks to their market share over the long term."