RBI sets Eligibility Criteria for Small Finance Banks (SFB) to transit into Universal banks under on-tap licensing

Posted 27 Apr 2024

2 min read

Universal banks (UBs) are banks that offer a wide range of financial services, beyond commercial banking and investment banking, such as insurance.
- Until now, SFBs were allowed to primarily undertake basic banking activities of acceptance of deposits and lending to unserved and underserved sections

On-tap licensing: It was introduced in 2016 for allowing banks to apply for banking licenses with the RBI throughout the year.
- Prior to this, banking licenses were granted upon invitation of applications by RBI to prospective players.

Eligibility for SFBs to transitioning into UBs
- Net Worth: SFBs must have a minimum net worth of Rs 1,000 crore.
- Status: SFBs must be scheduled banks with a satisfactory track record of performance for a minimum of 5 years.
- Financial Health:
  - Profitability: Should have net profits in the last two Financial Years.
  - Asset Quality: Gross non-performing assets (G-NPA) and net NPA (N-NPA) must be less than or equal to 3% and 1%, respectively, over the last two FYs.
- Stock Listing: Shares must be listed on a recognized stock exchange.
- Promoter Requirements: No addition of new promoters or changes to existing promoters are permitted during the transition.
  - No changes are allowed to the promoter shareholding dilution plan previously approved by the RBI.
- Preference: SFBs with a diversified loan portfolio will be preferred.

Genesis: Announced in the Union budget of 2014-15.
Registrations: Registered as a public limited company under the Companies Act, 2013.
Licensing: Licensed and governed under the Banking Regulation Act, 1949 and have no restrictions on where to operate.
Capital Requirement: 200 crore (except for some SFBs)
Mandates for financial inclusion: They are required to extend 75% of their ANBC (Adjusted Net Bank Credit) to the priority sector.

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