Differentiated banking
Also called: Niche banking · Topic: Banking Regulation, NPAs and Financial Stability · NCERT: Beyond NCERT
Meaning
Differentiated banking means licensing specialised banks that may do only a limited set of activities, so they can serve particular groups that universal banks often miss. The idea came from the Nachiket Mor Committee (2013). Guidelines followed in 2014, the first licences in 2015, and on-tap licensing of small finance banks in 2019. On-tap means applications can be made at any time.
Example
- Payments banks take deposits of up to Rs 2 lakh per customer (raised from Rs 1 lakh in 2021) and handle remittances. They cannot lend or issue credit cards. Minimum capital is Rs 100 crore.
- Small finance banks lend to small farmers and micro firms. At least 50% of their loans must be up to Rs 25 lakh. Minimum capital is Rs 200 crore.
Don't confuse with
- Universal banking: one institution offers the full range of services. A small finance bank can later become a universal bank.
Related concepts
- Payments bank
- Small finance bank
- Neobank
- Non-Banking Financial Company
- Scale-based regulation
- Shadow banking
- Asset-liability mismatch
- Digital lending