RBI Guidelines On Final ‘On Tap’ Licensing Of Small Finance Banks

Mumbai, December 6: The Reserve Bank of India (RBI) recently issued final guidelines for ‘on tap’ licensing of Small Finance Banks (SFB) in the private sector. This comes after the central bank’s constant efforts to bring in new guidelines simultaneously while gaining experience in dealing with these banks on a continuous basis, since November 2014. Post inviting and taking comments from various stakeholders and members of the public, the RBI issued a slew of measures on licensing SFBs. To start the licensing window it will be open on-tap for SFBs with minimum paid-up voting equity capital / net worth requirement of Rs 200 crore. That said for Urban Co-operative Banks (UCBs), the desire to convert voluntarily into SFBs would require them to have an initial net worth of Rs 100 crore, thereby increasing the same to Rs 200 crore within five years from the date of commencement of business. 

“Though there is a lot of clamour on co-operative banks to convert in to SFBs post the PMC scam, our discussions suggest that they too are disinterested due to restrictive business requirement of SFBs, unless some norms are relaxed or being nudged by the RBI,” said an analyst from Emkay Global Financial Services. SFBs would have general permission to open banking outlets from the date of operations. Further, when it comes to Payments Banks, they too can apply for conversion into SFB, however they would be converted into SFB only after five years of operations as per the eligible guidelines. “We believe there will be few takers (mainly Non-Banking Financial Company-Micro Finance Institutions (NBFC-MFIs) or some small regional NBFC for new SFB licences as they are more restrictive vs. Universal Bank norms. Separately, the RBI had also said that SFBs can apply for Universal Banking Licence only after completing five years,” the analyst said.