RBI lays down guidelines for payments banks’ SFB licence

News:The Reserve Bank of India has released final Guidelines for the ‘on tap’ Licencing for Small Finance Banks(SFBs).


About the Guidelines for ‘on-tap’ Licencing:

  • The minimum paid-up voting equity capital / capital requirement shall be Rs 200 crores.
  • For Primary (Urban) Co-operative Banks (UCBs), who voluntarily wants to transition into SFBs initial requirement of net worth shall be at ₹ 100 crores which will have to be increased to ₹ 200 crores within 5 years from the date of commencement of business.
  • The payment banks can also apply for conversion into Small Finance Banks(SFBs) after 5 years of operations if they are otherwise eligible as per these guidelines.
  • Small Finance Banks(SFBs) will also be given scheduled bank status immediately upon commencement of operations.Also,SFBs will have general permission to open banking outlets from the date of commencement of operations.
  • The listing of Small Finance Banks(SFB) will be made mandatory within three years after it reaches the net worth of Rs 500 crore for the first time.

Additional information:

About Small finance Bank:

  • Small finance Banks are niche banks that focus and serve the needs of a certain demographic segment of the population.
  • They primarily undertake basic banking activities of acceptance of deposits and lending to unserved and underserved sections including small business units, small and marginal farmers, micro and small industries and unorganised sector entities.

Functions of Small finance Banks:

  • Take small deposits and disburse loans.
  • Distribute mutual funds, insurance products and other simple third-party financial products.
  • Lend 75% of their total adjusted net bank credit to priority sector.
  • Maximum loan size would be 10% of capital funds to single borrower, 15% to a group.
  • Minimum 50% of loans should be up to 25 lakhs.

Guidelines for Small finance Banks:

  • Individuals/professions with 10 years of experience in finance, Non-Banking Financial Companies (NBFCs), microfinance companies, local area banks are eligible to set up SFBs.
  • The minimum paid-up equity capital for small finance banks shall be Rs. 100 crore.
  • Promoter must contribute minimum 40% equity capital and should be brought down to 30% in 10 years.
  • The fundamental requirement is that it must have 25% of its branches set up in unbanked areas.
  • Capital adequacy ratio should be 15% of risk weighted assets, Tier-I should be 7.5%.
  • Foreign shareholding capped at 74% of paid capital, FPIs cannot hold more than 24%.

Difference between Small finance Banks and Payment Banks: