Money & Banking

Final guidelines for on-tap licensing of SFBs unveiled

Mumbai | Updated on December 05, 2019 Published on December 05, 2019

The paid-up voting equity capital for small finance banks set at ₹200 crore

The Reserve Bank of India, on Thursday, unveiled the final guidelines for on-tap licensing of small finance banks that would give them the status of scheduled bank once they begin operations.

The RBI has also set a minimum net worth requirement of ₹200 crore, and has paved the way for existing eligible payments banks with five years of operations to convert to such banks.

“The minimum paid-up voting equity capital for small finance banks will be ₹200 crore,” the guidelines said. However, for SFBs, which have transited from UCBs, NBFCs, MFIs and payments banks, the minimum net worth would be ₹100 crore from the date of commencement of business, which will have to be increased to ₹200 crore within five years of operations.

“The objectives for setting up SFBs will be for furthering financial inclusion by provision of savings vehicles, primarily to unserved and underserved sections of the population; supply of credit to small business units, small and marginal farmers, micro and small industries and other unorganised sector entities through high technology low-cost operations,” the guidelines said. SFBs will have the general permission to open banking outlets from the date of commencement of operations.

Resident individuals and professionals, with at least 10 years of experience in banking and finance at a senior level and private sector companies and societies owned by Indian residents with a successful track record of running businesses for at least five years, are also be eligible as promoters to set up small finance banks. Eligible payments banks, existing NBFCs, MFIs, and local area banks, as well as urban cooperative banks, can also apply.

‘Fit and proper’ critieria

Promoter and promoter groups will have to comply with the RBI’s ‘fit and proper’ critieria. The RBI has also fixed the promoter holding at a minimum of 40 per cent of the paid-up voting equity capital of the bank at all times during the first five years of operations.

If it is in excess of 40 per cent, it should be brought down to 40 per cent within five years, the norms said. Promoter stake would have to be reduced to 30 per cent of the paid-up voting equity capital of the bank within 10 years, and to 15 per cent within 15 years of operations.

Listing will be mandatory within three years after the small finance bank reaches a net worth of ₹500 crore for the first time.

Interested candidates can submit applications to the RBI at any time, which will be assessed and then referred to the Standing External Advisory Committee (SEAC) to be set up by the RBI. Based on its recommendations, the applications will be taken up by the internal screening committee (ISC), comprising the Governor and the Deputy Governors. The ISC will then submit its recommendations to the committee of the central board (CCB) of the RBI for the final decision to issue ‘in-principle approval’.

Published on December 05, 2019
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