RBI sets standards for SFBs eyeing universal bank licence

Mumbai: Small Finance Banks (SFBs) must maintain profitability, and keep their gross non-performing assets ratio below 3% for at least two financial years before applying for a universal bank licence, the Reserve Bank of India (RBI) said in its guidelines, outlining the eligibility criteria, on Friday.

According to RBI, SFBs must also have a minimum net-worth of ₹1,000 crore at the end of a quarter, along with a capital adequacy requirement of 15% to be considered for a licence. They must also deliver satisfactory performance for a minimum period of five years.

RBI has asked eligible SFBs to submit their applications for transitioning to a universal bank. The guidelines comes amid heightened activity by SFBs to explore opportunities for expansion and diversification after completing five years of operation. 

In a recent meeting with RBI, the heads of several SFBs advocated for a clear plan to navigate the transition process smoothly.

Furthermore, RBI has allowed existing promoters of SFBs to continue once they transition to a universal bank. The central bank said there shall be no new mandatory lock-in requirements of minimum shareholding for existing promoters as they transition to a universal bank. 

Only eligible SFBs with a diversified loan portfolio will be preferred, added RBI. 

SFBs were established in 2016 with the aim of channeling loans to smaller enterprises, farmers, and underserved segments. These specialized banks were mandated to maintain a minimum net worth of ₹200 crore. They were also required to ensure at least 75% of the loans they provide are below ₹25 lakh..

Presently, India has 11 SFBs, several of which originated as microfinance institutions (MFIs).