The Reserve Bank of India (RBI) has released the final guidelines for setting up payment banks and small banks to promote financial inclusion in the country. These guidelines will allow entities like telecom operators to set up financial institutions, but with operations restricted to specified banking domains.

A payment bank will be able to take deposits but not provide lending services. Further, it would have to invest all the funds in government securities. A small bank, on the other hand, will be allowed to provide lending services, but with restrictions on their location.

The applications to apply for these new differentiated bank licences will be accepted till January 16, 2015 and will then be screened by an external advisory committee comprising of bankers, chartered accountants and finance professionals. After the in-principle approval of the application, the companies would be given 18 months to initiate the operations as banking entities.

Earlier, Bharti Airtel had contemplated an alliance with the State Bank of India for the establishment of a payments bank. Also, in November 2014, the payment solutions provider, Oxigen Services planned to apply for a licence to transform itself into a payment bank.