Introduction: On April 26, 2024, the Reserve Bank of India (RBI) issued a framework for the voluntary transition of Small Finance Banks (SFBs) to Universal Banks (UBs). These guidelines are part of the “Guidelines for ‘on-tap’ Licensing of Small Finance Banks in Private Sector” issued on December 5, 2019.
Eligibility Criteria for SFBs to Convert to UBs:
- Net Worth: Minimum net worth of Rs 1000 crore as of the end of the previous audited quarter.
- Track Record: Must have scheduled status with a satisfactory performance record for at least 5 years.
- CRAR Requirements: Must meet the Capital to Risk-Weighted Assets Ratio (CRAR) of 15%.
- Stock Exchange Listing: Shares must be listed on a recognized stock exchange (Note: North East Small Finance Bank is currently not listed).
- Profitability: Must have a net profit in the last 2 financial years.
- Asset Quality: Gross Non-Performing Asset (GNPA) and Net Non-Performing Asset (NNPA) ratios must be ≤ 3% and 1% respectively in the last 2 financial years.
Shareholding Pattern Conditions:
- No mandatory requirement for an identified promoter.
- Existing promoters, if any, must continue in their role during the transition.
- No addition of new promoters or change in promoters is allowed during the transition.
- No new mandatory lock-in requirement for existing promoter shareholding.
- Preference will be given to SFBs with a diversified loan portfolio.
- Existing promoter shareholding dilution plans approved by RBI will remain unchanged.
Key Points:
- Rationale for Transition: Eligible SFBs must provide a detailed rationale for their transition to UB.
- Application Assessment: Applications will be assessed according to the “Guidelines for ‘on-tap’ Licensing of Small Finance Banks in Private Sector” dated August 2016 and the RBI’s directions on the acquisition and holding of shares or voting rights in banking companies, dated January 16, 2023.
Current Small Finance Banks in India:
- AU Small Finance Bank Limited (Jaipur, Rajasthan)
- Capital Small Finance Bank Limited (Jalandhar, Punjab)
- Equitas Small Finance Bank Limited (Chennai, Tamil Nadu)
- ESAF Small Finance Bank Limited (Thrissur, Kerala)
- Suryoday Small Finance Bank Limited (Navi Mumbai, Maharashtra)
- Utkarsh Small Finance Bank Limited (Varanasi, Uttar Pradesh)
- North East Small Finance Bank Limited (Guwahati, Assam)
- Shivalik Small Finance Bank Limited (Noida, Uttar Pradesh)
- Unity Small Finance Bank Limited (New Delhi, Delhi)
- Ujjivan Small Finance Bank Limited (Bengaluru, Karnataka)
- Jana Small Finance Bank Limited (Bengaluru, Karnataka)
Note: On April 1, 2024, RBI approved the merger of Fincare SFB into AU Small Finance Bank Limited, reducing the number of SFBs in India to 11.
About Small Finance Banks (SFBs): SFBs are financial institutions established to provide financial services to unserved and unbanked regions of India. They are established under the Companies Act, 2013, and governed by the provisions of the RBI Act, 1934, and the Banking Regulation Act, 1949.
About Reserve Bank of India (RBI):
- Governor: Shaktikanta Das (25th Governor of RBI)
- Headquarters: Mumbai, Maharashtra
- Established: April 1, 1935
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