RBI issues draft guidelines on small finance banks

The Reserve Bank is putting finishing touches to the rules that will govern small financial banks (SFBs) and has circulated a confidential set of guidelines for their feedback. CNBC-TV18's Ritu Singh reports that these SFBs are likely to submit their comments on draft norms by Tuesday and final guidelines on the same are expected soon. SFBs have been given a year to comply with 25 percent rural unbanked region branches rule and are not allowed to purchase portfolios of loans from other lenders. Further, SFBs will not be allowed to issue or invest in credit derivates and lending done by SFBs from loans secured by other banks cannot be counted under Priority Sector Lending (PSL). A bank lending to Micro Finance Institutions (MFIs) or non-banking financial companies (NBFCs) is currently counted as PSL. The minimum capital requirement has been maintained at 15 percent, with Tier I and II at 7.5 percent each.Meanwhile, SFBs have been allowed exemption from existing ceiling on inter-bank borrowings till current loans mature (for at least three years).