Small Finance Banks need Rs 200 cr minimum capital for acquiring license, proposes RBI

Small Finance Banks

The Reserve Bank of India (RBI) has proposed a minimum equity capital of Rs 200 crore to set up a small finance bank (SFB) as per the ‘on tap’ licence regime, in a bid to expand the banking services through high technology-low cost operations.

Small Finance Banks

Unveiling the draft guidelines for ‘on tap’ licensing of SFBs in the private sector, the RBI said existing non-banking financial companies (NBFCs), microfinance institutions and local area banks in the private sector, that are controlled by residents can convert into small finance banks.

Entries from public sector entities and large industrial house/business groups, and autonomous boards/bodies will not be entertained, said RBI.

Further, a small finance bank is set up to embark on basic banking actions of receiving of deposits and lending to underserved sections, including small business units, small and marginal farmers, micro and small industries and unorganised sector entities.

The objectives of setting up of SBFs is boosting financial inclusion and promote the supply of credit “with the use of high technology-low cost operations”, the draft said.

“The minimum paid-up voting equity capital for small finance banks shall be Rs 200 crore, except for such small finance banks which are converted from UCBs…,” said the draft on which the central bank has sought comments from the stakeholders by October 12.

Keeping the inherent risk of an SFB in mind, it shall be required to retain a minimum capital adequacy ratio of 15 percent of its risk weighted assets (RWA) on a constant basis. The draft also said the promoters must hold a minimum of 40 percent of the paid-up voting equity capital of the bank, which would remain untouched in for five years from the date of instigation of the bank’s business.

“Proposals having diversified shareholding, subject to the initial minimum shareholding of promoters, and a time frame for listing of the bank will be preferred,” it said.

As soon as the SFB reaches the net worth of Rs 500 crore, listing will be compulsory within three years of reaching that net worth. Also, SFBs with net worth of below Rs 500 crore could are entitled to get their shares listed voluntarily, subject to fulfilment of the requirements of the capital markets regulator.

The foreign shareholding for the small finance bank would be in adherence to the extant foreign direct investment (FDI) policy for private sector banks. The RBI had announced the guidelines for licensing of SFBs in the private sector in November 2014.

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