MUMBAI: THE Reserve Bank of India (RBI) on Friday issued guidelines for “on tap” license for Small Finance Banks (SFB) as per its announcement in the June Monetary Policy statement. RBI has kept the focus on unbanked areas, northeast, east and central India for the new SFBs in terms of preference, though there is no restriction in the area of operations. They have to open at least 25 per cent of banking outlets in unbanked rural centres.
The minimum paid-up voting equity capital for SFBs would be Rs 200 crore. Urban Co-operative Banks that want to convert to SFB need to have a minimum net worth of Rs 100 crore to start with but have to increase it to Rs 200 crore in five years from the commencement of business. “In view of the inherent risk of a SFB, it shall be required to maintain a minimum capital adequacy ratio of 15 per cent of its risk-weighted assets on a continuous basis,” it said.
After the initial stabilization period of five years, and after a review, RBI may liberalize the scope of activities of the SFBs according to the guidelines issued. Currently, there are 10 SFB’s in the private sector that were issued licences as per the November 2014 circular.
Resident individuals singly or jointly having 10 years experience in banking and finance at a senior level, firms and societies in private sector with successful track record of business for five years will be eligible as promoters to set up SFB. While RBI would allow existing NBFCs or Micro Finance Institutions and Local Area Banks in the private sector to convert to SFB, it has said joint venture by different promoter groups for setting-up of SFB would not be allowed.
“As local focus and the ability to serve smaller customers will be the key criteria in licensing such banks, this may be a more appropriate vehicle...” it said.