RBI says eligible SFBs can apply to become universal banks under on-tap licensing

RBI

The Reserve Bank of India (RBI) on April 26 said eligible small finance banks (SFBs) can apply with the regulator to become universal banks in accordance with the on-tap licesning norms.

Eligible SFBs need to have a minimum net worth of Rs 1,000 crore as at the end of the previous quarter and should meet the prescribed CRAR requirements for SFBs, the central bank said.

According to the central bank, the SFBs aspiring to become a universal bank needs to have scheduled status with a satisfactory track record of performance for a minimum period of five years. Also, the shares of the bank should have been listed on a recognised stock exchange, the RBI said.

Further, these SFBs also need to have a net profit in the last two financial years besides having gross non-performing assets (GNPA) and net non-performing assets (NNPA) of less than or equal to three percent and one percent respectively in the last two financial years, the RBI said.

Other conditions

The RBI said there is no mandatory requirement for an eligible SFB to have an identified promoter. However, the existing promoters of the eligible SFB, if any, need to continue as the promoters on transition to Universal Bank.

Also, the addition of new promoters or change in promoters need not be permitted for an eligible SFB while transitioning to Universal Bank, the RBI said.

The RBI said there shall be no new mandatory lock-in requirement of minimum shareholding for existing promoters in the transitioned Universal Bank.

Also, there shall be no change to the promoter shareholding dilution plan already approved by the Reserve Bank, the central bank said, adding the eligible SFBs having diversified loan portfolio will be preferred.

What the 2019 guidelines say?

While issuing guidelines on on-tap licensing for SFBs in December, 2019, the RBI had laid out a transition path for SFBs to convert to universal banks. "The SFB may choose to continue as a differentiated bank. If it aspires to transit into a universal bank," the RBI had said.

Such transition will not be automatic, but would be subject to it applying to RBI for such conversion and fulfilling minimum paid-up voting equity capital / net worth requirement as applicable to universal banks, the RBI had said.

RBI said a satisfactory track record of performance as a small finance bank for a minimum period of five years and the outcome of RBI’s due diligence exercise will also be part of the conditions for the transition.

"On transition into a universal bank, it will be subjected to all the norms including NOFHC structure as applicable," the RBI had said.