The Reserve Bank on Monday raised the minimum capital requirement for small finance banks to Rs 200 crore and permitted Payments Bank to upgrade as SFBs.
Incidentally, the net worth of all SFBs currently in operation is over Rs 200 crore.
Issuing the revised guidelines, the Reserve Bank said that for Primary (Urban) Co-operative Banks (UCBs) desirous of voluntarily transiting into SFBs, the initial requirement of net worth would be at Rs 100 crore, which will have to be increased to Rs 200 crore within five years from the date of commencement of business.
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Payments Banks can apply for conversion into SFB after five years of operations if they are otherwise eligible as per the guidelines, it said.
Meanwhile, Fino Payments Bank, in a statement, said the bank has already applied for an SFB licence as per regulatory guidelines on Payments Bank conversion to SFB.
The regulator is examining the application and awaiting further comments from the RBI as per the process, Fino said.
According to the notification, “SFBs will be given scheduled bank status immediately upon commencement of operations”.
The banks will have general permission to open banking outlets from the date of commencement of operations, it said.
The Reserve Bank of India (RBI) last issued guidelines for licensing of small finance banks in the private sector on November 27, 2014.
Consequently, it issued in-principle approval to 10 applicants, and they have since established banks.
Most of these SFBs are now listed on stock exchanges. Kerala-headquartered ESAF Small Finance Bank is the latest to go public. It was listed in November last year.
SFBs are expected to offer basic banking services, accepting deposits and lending to unserved and underserved sections, including small business units, small and marginal farmers, micro and small industries, and entities in the unorganised sector.
The difference between SFBs and Payments Bank is that the latter is not allowed to do lending.
Payments Bank can provide basic savings, and deposit, payment and remittance services to people without access to the formal banking system.
As per the norms, SFBs are subject to most of the prudential norms that scheduled commercial banks have to adhere to. For instance, they need to maintain a cash reserve ratio (CRR), or portion of deposits to be set aside with the central bank, and statutory liquidity ratio (SLR), or the portion of deposits to be invested in government securities, as stipulated for commercial banks.
About 75 per cent of the credit advanced by small finance banks will need to go to sectors that are considered part of the so-called priority sector, including agriculture, small enterprises and low-income earners.
Commercial banks have to mandatorily lend 40 per cent of their net bank credit to such sectors.
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