RBI offers on-tap licence to small finance banks, doubles minimum capital requirement to Rs 200 cr

Mumbai: The Reserve Bank on Thursday issued the final guidelines for ‘on-tap’ licensing of small finance banks (SFBs) and doubled the minimum capital requirement to Rs 200 crore. In November 2014, the Reserve Bank of India (RBI) had issued licences to 10 companies interested to launch small finance banks (SFBs) as part of its effort to further financial inclusion. Under the new on-tap licensing guidelines, the RBI has increased the minimum paid-up voting equity capital at Rs 200 crore, from Rs 100 crore set earlier, the regulator said in a statement. [caption id=“attachment_4875601” align=“alignleft” width=“380”] File image of RBI. AFP[/caption] The Rs 200-crore minimum capital requirement norms would not be applicable for SFBs which came into operation after converting from urban cooperative banks, NBFCs/MFIs/local area banks and payment banks, the regulator said. Payments banks which have completed five years of operations are also eligible for conversion to small finance banks after complying with regulatory requirements. “In view of the inherent risk of a small finance banks, they shall be required to maintain a minimum capital adequacy ratio of 15 percent of its risk weighted assets on a continuous basis,” the RBI said. They also have to maintain a tier I capital of at least 7.5 percent of their risk-weighted assets while tier II capital should be limited to a maximum of 100 percent of the total tier I capital. The RBI has also allowed any resident individuals/professionals, singly or jointly, having at least 10 years of experience in banking and finance at a senior level to set up small finance banks. Companies and societies in the private sector which are owned and controlled by residents, and having successful track record of running their businesses for at least a period of five years, will also be eligible to promote SFBs. Existing NBFCs, MFIs, and local area banks in the private sector, that are controlled by residents, and having successful track record of running their businesses for at least five years, can also opt for conversion into SFBs after complying with all regulatory requirements. The RBI said the promoters can hold a minimum of 40 percent of the paid-up voting equity capital of the bank at all times during the first five years from the date of commencement of business. If initial shareholding by promoters in the bank is in excess of 40 percent of paid-up voting equity it should be brought down to 40 percent within five years, it said. The promoters’ stake should be brought down to a maximum of 30 percent of the paid-up voting equity capital of the bank within 10 years, and to a maximum of 15 percent within 15 years. Listing of SFBs will be mandatory within three years after the bank reaches a networth of Rs 500 crore for the first time. The newly set up SFBs should ensure that they put in place a robust risk management framework, RBI said, adding they will have general permission to open banking outlets from the date of commencement of business, the RBI said, adding they may choose to continue as a differentiated bank.