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Plans of several entities for setting up a small finance bank, including four Labour Welfare Boards from Kerala, may have been dampened after the Reserve Bank of India, on Thursday, issued clarification on eligibility for submitting applications.
Guidelines
The four Kerala labour boards (which are autonomous bodies set up by the Act of the State) had sought clarification if they can come together as promoters. In response, the RBI has said that the guidelines do not provide for them to start a Small Finance Bank (SFB). The central bank, however, said that a State government can hold shares in the SFB as a non-promoter. But State Finance Corporations are not eligible to promote small finance banks.
Also, a subsidiary of a development finance institution registered as non-deposit taking NBFC (₹1000 crore company) will not be eligible to apply for SFB licence.
Eligibility criteria
Last November, the National Bank for Agriculture and Rural Development announced that it will consider converting its subsidiary, Nabard Financial Services, into an SFB if the RBI guidelines for differentiated banks allow all-India operation for such banks.
Total assets
Following the clarification, Nabfin may not be eligible to convert itself into an SFB.
The RBI also said that a promoter of a large business or an industrial house cannot form a Small Finance Bank. An NBFC, which is not part of an existing large business, is eligible. A Group with assets of ₹1,000 crore with the non-financial business accounting for 40 per cent or more in terms of total assets or revenue (whichever is higher), will be treated as a large business group.
Joint ventures by different promoter groups for the purpose of setting up SFBs would not be permitted. However, the promoter can get non-promoter investors in the bank subject to a ceiling on such investments and subject to the respective sectoral regulators’ requirements.
Joint venture
Special Purpose Vehicle incorporated by two entities (one, a microfinance institution and the other a co-operative bank) for incorporating small banks, belonging to same promoter group will be treated as a joint venture and hence not permitted to start an SFB.
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