In a move that may elevate small finance banks to universal banks, the Reserve Bank of India is expected to issue guidelines or circular which may capture the requirements that SFBs should have to convert into universal bank. An application process for upgradation to universal bank is also likely to form part of this circular.

At present, SFBs can seek to become universal banks upon five years of operations as small finance bank. The current licensing norms for SFBs do not have any additional requirements or conditions to be met to convert to universal bank.

“However, there is dilemma on whether a fresh application needs to be made to convert into a universal bank or the concerned department at RBI should be approached for this purpose,” said a senior executive of an SFB who didn’t want to be named. Presently, there is no formal process of applying for an upgradation from SFB to universal bank. “This is stalling many of us from seeking universal bank licence, because there is no form or application to be furnished in this regard,” said a CEO of an SFB on condition of anonymity. The RBI’s move to come out with a circular or application format is expected to end this logjam.

Upgradation requirements

While the exact contents of the circular or application format is still under deliberation, it is understood that asset quality, asset composition, branch network, adherence to corporate governance, the quality of leadership and information technology capabilities of the bank may be some of yardsticks based on which the regulator could assess the ability of the SFB to convert to universal bank.

That said, a section of senior SFB executives expresses their apprehension on the expected circular. “When the licensing norms specify that any SFB can apply to become universal bank after five years of completing operations, how can additional strictures be introduced. It might go against the essence of the licensing norms,” said a CEO of an SFB.  

Presently, at least four small finance banks namely Equitas SFB, AU SFB, Ujjivan SFB and Jana SFB have indicated their intention to elevate to universal bank. However, their talks with the regulator on this aspect have been informal in the last one–two years. CEOs of some of these SFBs have said in the past that once the window for conversion opens, they would apply to become universal banks.