MC Explains | RBI rejects 3 more SFB licence applications; all you need to know

How many entities had applied for an SFB licence?

The central bank received 12 applications for small finance bank licences and universal bank licences.

UAE Exchange and Financial Services Ltd, The Repatriates Cooperative Finance and Development Bank Limited (REPCO Bank), Chaitanya India Fin Credit Private Limited, Pankaj Vaish and others, and Annapurna Finance applied for ‘on tap’ Licensing of Universal Banks.

VSoft Technologies Private Ltd, Calicut City Service Co-operative Bank Ltd, Akhil Kumar Gupta, Dvara Kshetriya Gramin Financial Services Pvt Ltd, Cosmea Financial Holdings Private Ltd, Tally Solutions Private Ltd, and West End Housing Finance Ltd had applied for ‘on tap’ Licensing of Small Finance Banks.

Which of the above applications have been rejected so far?

Last year, in May, the central bank rejected six applications as they were found unsuitable for grant of a small finance bank licence or universal bank licence.

Those found not suitable for universal bank permits were UAE Exchange and Financial Services Limited, The Repatriates Cooperative Finance and Development Bank Limited (REPCO Bank), Chaitanya India Fin Credit Private Limited, and Pankaj Vaish and others.

The applicants found not suitable for SFB permits were VSoft Technologies Private Limited and Calicut City Service Co-operative Bank Limited.

Similarly, on July 4, the central bank found Akhil Kumar Gupta, Cosmea Financial Holdings Private Limited, and West End Housing Finance Limited, not suitable for a small finance bank licence.

Which entities are still under consideration for a licence?

The remaining applicants for SFB and Universal Bank licences are Dvara Kshetriya Gramin Financial Services Private Limited, Tally Solutions Private Limited, and Annapurna Finance Private Limited. In its statement, the central bank said it will examine these applications.

What do the recently rejected entities do?

Cosmea Financial Holdings Pvt Ltd, according to its website, is in various businesses such as broking, investment banking, insurance solutions, banking, and wellness solutions.

West End Housing Finance Ltd facilitates lending in the affordable housing segment.

When did the RBI first announce its SFB guidelines?

In 2014, the RBI released guidelines for SFBs with the objective of furthering financial inclusion by providing savings vehicles. It also aimed to supply credit to small business units, small and marginal farmers, micro and small industries, and other unorganised sector entities through high technology-low cost operations.

What changes did the RBI make in 2019?

In 2019, major changes were made to the 2014 guidelines on Small Finance Banks. The licensing window opened on-tap; the minimum paid-up voting equity capital / net worth requirement was set at Rs 200 crore.

Also, for primary (Urban) Co-operative Banks (UCBs) desirous of voluntarily transitioning as Small Finance Banks (SFBs), the initial net worth requirement was set at Rs 100 crore, to be increased to Rs 200 crore within five years from the date of commencement of business.

An Internal Screening Committee (ISC), consisting of the Governor and the Deputy Governors, examines all the applications and then submits its recommendations to the Committee of the Central Board of the Reserve Bank for a final decision on in-principle approval.

Even if an applicant meets the eligibility criteria, the central bank has the discretion to reject the application. The last time the RBI issued universal banking permits was in 2015, when IDFC and Bandhan were given banking licences.