Minimum net worth, profit track record top RBI norms for SFBs to upgrade to universal banks
The Reserve Bank of India on Friday laid out a roadmap for the voluntary transition of small finance banks (SFBs) to universal banks, prescribing criteria such as a minimum net worth of ₹1,000 crore, net profit in the last two financial years, low non-performing asset (NPA) ratio, and a diversified loan portfolio.
businessline had reported on April 7 about the possibility of the RBI issuing these guidelines for SFBs to convert into universal bank.
ELIGIBILITY CRITERIA
Going by the six prescribed eligibility criteria, most of the 10 applicants, which were granted ‘in-principle’ approval in 2015 to set up SFBs, may be ready to upgrade to a universal bank only next year as currently they do not meet the gross and net NPA norm of less than or equal to 3 per cent and 1 per cent, respectively, in the last two financial years, say industry experts.
The central bank said SFBs wanting to convert into a universal bank should be listed on a stock exchange (among the 10 SFBs only North East Small Finance Bank is not listed); have a minimum net worth of ₹1,000 crore as at the end of the previous quarter (audited); meeting the prescribed CRAR (capital to risk-weighted assets ratio) of 15 per cent for SFBs; and scheduled status with a satisfactory track record of performance for a minimum of five years.
When it comes to the shareholding pattern, the RBI said there is no mandatory requirement for an eligible SFB to have an identified promoter. However, the
GUIDELINES
Banks must have minimum net worth of ₹1,000 crore
Net profit in the last two financial years
Low NPA ratio and diversified loan portfolio existing promoters of the eligible SFB, if any, have to continue as promoters, post transition to a universal bank. Addition of new promoters or change in promoters will not be permitted while transitioning to a universal bank.
LOCK-IN REQUIREMENT
The RBI said there will be no new mandatory lock-in requirement of minimum shareholding for existing promoters in the transitioned universal bank.
Per the ‘Guidelines for on tap licensing of SFBs in the private sector’, promoters have a lock-in period of five years.
“There shall be no change to the promoter shareholding dilution plan already approved by the Reserve Bank. The eligible SFBs having diversified loan portfolio will be preferred,” per the circular.
The RBI said the eligible SFB will be required to furnish a detailed rationale for such transition.
Further, on transition the bank will be subjected to all the norms including nonoperative financial holding company structure (as applicable) as per the said guidelines.
Currently, there are 11 SFBs — AU (Fincare SFB merged with AU on April 1, 2024), Capital, Equitas, Suryoday , Ujjivan, Utkarsh, ESAF Jana, North East, Shivalik and Unity.