RBI issues final norms for 'on-tap' licensing of Small Finance Banks

The Reserve Bank of India (RBI) on December 5 released final guidelines and opened the window for applicants to approach the regulator at any point of time for 'on-tap' licensing of Small Finance Banks (SFBs).

The minimum paid-up voting equity capital or net worth requirement has been set at Rs 200 crore,  up from Rs 100 crore as set earlier.

For primary urban cooperative banks that intend to convert into SFB, RBI said that the initial requirement of net worth shall 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.

Payments Banks have also been allowed to apply for conversion into SFB after five years of operations, if they are meet other eligibility norms.

Investors, other than promoters, will not be allowed to hold more than 10 percent stake in the SFB. However, in case of non-banking finance companies, micro-finance institutions and local area banks, where non-promoters hold more than 10 percent limit, RBI may consider giving 3 years time to dilute the stake.

SFBs will be given scheduled bank status immediately and will be allowed to open banking outlets from the date of commencement of operations, RBI said.

RBI will appoint a Standing External Advisory Committee (SEAC) with a tenure of three years to process applications. Successful applicants will be granted an 'in-principle' approval, which will be valid for 18 months.

The listing of SFB will be mandatory within three years after it reaches the net worth of Rs 500 crore for the first time.

The central bank had earlier issued guidelines for licensing of SFBs in November 2014, that led to granting of in-principle approval to 10 applicants. In September 2019, the draft norms were issued for 'on-tap' licensing of SFBs.