RBI to set up forex trading platform for SMEs, get more players for Small Finance Banks

Setting out various developmental and regulatory policy measures, the Reserve Bank of India (RBI) on Thursday said it will create a foreign exchange trading platform for SME exporters and importers. Unveiling its second Bi-monthly Monetary Policy Statement, 2019-20, the Central Bank also decided to widen the ambit of small finance banks and get more players to extend such banking facilities.

RBI in its statement said that the view is to create market infrastructure that would ensure fair and transparent pricing for users of foreign exchange (such as Small and Medium Enterprise exporters and importers, individuals, etc.). The Reserve Bank in October 2017, had issued a discussion paper proposing to set up a foreign exchange trading platform for retail participants that would provide customers with access to an electronic trading platform through an internet-based application on which they can purchase/sell foreign currency at market clearing prices.

“By unifying the existing fragmented market microstructure, this platform would provide transparency of pricing and promote competition among market-makers leading to better pricing for all customers, regardless of order size. The trading platform has now been developed by the Clearing Corporation of India (CCIL) and is being tested by users. The platform will be available to users for transactions from early August 2019,” said RBI. The circular on operational guidelines for the platform shall be issued by the end of June 2019.

Small Finance Banks
The central bank also talked about small finance and payments bank. The RBI said it had notified in the Guidelines for Licensing of “Payments Banks” and “Small Finance Banks” in the Private Sector dated November 27, 2014, that after gaining experience in dealing with these banks, it will consider ‘on tap’ licensing of these banks.

“In the case of Small Finance Banks, license was issued to ten such banks. Further, eight of the ten Small Finance Banks have also been included in the second schedule of the RBI Act, 1934. A review of the performance of Small Finance Banks reveals that they have achieved their priority sector targets and thus attained their mandate for furthering financial inclusion,” said RBI.

The Central Bank now proposes to include more players to enhance access to banking facilities to the small borrowers and to encourage competition. “It is, therefore, proposed to issue the Draft Guidelines for ‘on tap’ Licensing of Small Finance Banks by the end of August 2019,” said RBI.

On tap licensing means the applications could be submitted to the RBI at any point of time, throughout the year and licenses will be granted accordingly.

It, however, added that it has also been decided that more time is needed to review the performance of Payments Banks before considering the licensing of this category of banks to be put ‘on tap’.

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