NBFCs, MFIs & co-ops can now become SFBs

Mumbai: The Reserve Bank of India (RBI) on Friday released the final guidelines for on-tap licence of small finance banks (SFB). This would allow applicants to approach the banking regulator on an ongoing basis.  The revised norms allow primary urban cooperative banks and payment banks to convert into a SFB after five years of operations if they are otherwise eligible. The new norms leave scope for NBFCs and MFIs, too, to explore the SFB route.

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.

Incidentally, the net-worth of all SFBs currently in operation is in excess of Rs 200 crore.

Karthik Srinivasan, Group Head, Financial Sector Ratings, Icra, said, “Though the return on equity is likely to decline during initial years of transition to SFB, the liquidity tightness for the last one year and risk aversion to NBFCs may prompt many NBFCs to explore the SFB model to address the liabilities issue and hence we expect good response for seeking a SFB licence.”

“Given that licensing is on-tap basis, we expect NBFCs to finalise their business plans, organisation structure, systems and processes before applying for the licence to ensure a better success rate.

Deposits mobilisation will remain the key success factor for the SFBs and though the existing SFBs have scaled up their deposits, some of them continue to remain depen-dent on wholesale depo-sits,” added Srinivasan.

For primary urban cooperative banks that intend to convert into SFB, 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 said the RBI.

SFBs will be given scheduled bank status immediately upon commencement of operations.  SFBs will have general permission to open banking outlets from the date of commencement of operations. 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, the RBI may consider giving three years time to dilute the stake.

The RBI will appoint a Standing External Advis-ory Committee (SEAC) with a three-year tenure to process applications. Successful applicants will be granted an 'in-principle' approval, 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 RBI first issued guidelines for licensing SFBs in November 2014.