Banking Operations and Licensing
The Reserve Bank of India (RBI) outlines its approach to banking operations and licensing through a framework of ongoing supervision, detailed in the Master Directions, alongside tailored licensing procedures. A significant regulatory update is set for 2025–2026, aiming to tackle digital advancements and group-related risks.
1. Licensing Framework
RBI manages various licensing systems as per the Banking Regulation Act of 1949
Department Of Financial Services
Universal Banks (On-Tap)-
- Eligibility: To qualify, individuals or professionals must have at least 10 years of senior banking experience, or private entities should possess a 10-year operational history.
- Capital Requirements: A minimum initial net worth of ₹1,000 crore is needed.
- Listing Obligation: Banks are required to be listed on stock exchanges within six years of starting operations.
Differentiated Banks-
- Small Finance Banks (SFBs): Aimed at promoting financial inclusion, these banks require a minimum capital of ₹200 crore, increasing to ₹1,000 crore for universal bank status.
- Payments Banks: These banks can only accept deposits, currently limited to ₹2 lakh per customer, and focus on remittance services, with a minimum capital of ₹100 crore.
- Branch Licensing: As per Section 23 of the Banking Regulation Act, banks usually need prior approval to establish new branches, but some flexibility is allowed for specific rural areas and specialized outlets.
2. Operational Guidance & Recent Mandates
Operational guidelines have been largely consolidated in the Master Directions, which are subject to periodic updates.
Digital Banking & Fraud (Effective 2026)-
- Channel Authorization: Starting January 1, 2026, a new framework will be implemented for all commercial banks (excluding SFBs, Payments Banks, and LABs) that requires prior approval for digital transactional services.
- Fraud Safeguards: Proposed regulations effective from July 1, 2026, aim to enhance protections for customers and set liability standards in digital transactions.
Group-Level & Exclusivity Restrictions:
- Business Overlap: Beginning April 1, 2026, banks will not be permitted to conduct the same business activities both within the bank and through affiliated entities (e.g., car loans), unless justified by the board.
- AIF/REIT Investments: Stricter regulations will be imposed on group-wide investments in Alternative Investment Funds (AIFs) and Real Estate Investment Trusts (REITs).
Customer-Centric Operations:
- BSBD Accounts: Banks are required to offer a mandatory basic savings account with essential free services (such as an ATM card and 25 cheque leaves).
- KYC & Nominations: Updated guidelines call for simplified claim settlement processes and adaptable nominee designations for better protection of depositors.
3. Governance and Risk Management
- Board Oversight: Banks must establish board-approved policies that focus on Responsible Business Conduct and Credit Risk Management.
- Scale-Based Regulation (SBR): Non-Banking Financial Companies (NBFCs) will be classified into four tiers (Base, Middle, Upper, Top), with progressively stricter capital and governance mandates as they grow.
- Internal Ombudsman: Revised directives for 2026 will require all regulated entities, including SFBs and Payments Banks, to maintain a robust internal complaint resolution mechanism.
