Skip to main content

Voluntary transition of Small Finance Banks to Universal Banks

Reserve Bank of India (RBI) has updated the guidelines on voluntary transition of Small Finance Banks to Universal Banks.

What is the difference between Small Finance Bank (SFB) and Universal Bank?

Particulars Small Finance Bank (SFB) Universal Bank
Minimum paid-up voting equity capital ₹300 crore ₹1000 crore
Capital requirement 15% of Risk Weighted Assets (RWA) 9% of RWA
Scope of activities Basic banking activities of acceptance of deposits and lending to unserved and underserved sections including small business units, small and marginal farmers, micro and small industries and unorganised sector entities. No such restrictions.
Loan portfolio At least 50% of loan portfolio should constitute loans and advances of up to ₹25 lakh. No such restrictions.
Priority sector lending target 75% of Adjusted Net Bank Credit (ANBC) 40% of ANBC

What were the earlier guidelines on transition of SFB into Universal Bank?

The transition of SFB into Universal bank shall be subject to the SFB’s fulfilling minimum paid-up capital / net worth requirement as applicable to Universal Banks, satisfactory track record of performance as an SFB for a minimum period of 5 years and RBI’s due diligence exercise.

What are the revised eligibility criteria for transition of SFB into Universal Bank?

The eligibility criteria for an SFB to transition into a Universal bank is as follows –

  • Scheduled status with a satisfactory track record of performance for a minimum period of 5 years.
  • Shares of the bank should have been listed on a recognised stock exchange.
  • Having a minimum net worth of ₹1,000 crore as at the end of the previous quarter (audited).
  • Meeting the prescribed CRAR requirements for SFBs.
  • Having a net profit in the last 2 financial years.
  • Having GNPA and NNPA of less than or equal to 3% and 1% respectively in the last 2 financial years.

What are the conditions for shareholding pattern?

The following conditions shall be applicable with regard to shareholding pattern –

  • There is no mandatory requirement for an eligible SFB to have an identified promoter. However, the existing promoters of the eligible SFB, if any, shall continue as the promoters on transition to Universal Bank.
  • Addition of new promoters or change in promoters shall not be permitted for an eligible SFB while transitioning to Universal Bank.
  • There shall be no new mandatory lock-in requirement of minimum shareholding for existing promoters in the transitioned Universal Bank.
  • There shall be no change to the promoter shareholding dilution plan already approved by RBI.
  • The eligible SFBs having diversified loan portfolio will be preferred.

What are other requirements?

  • The eligible SFB shall be required to furnish a detailed rationale for such transition. 
  • On transition, the bank will be subjected to all the norms including NOFHC structure (as applicable).


References

Reserve Bank of India. (2016, August 01). 'Guidelines for ‘on tap’ Licensing of Universal Banks in the Private Sector'. Retrieved from https://www.rbi.org.in/scripts/bs_viewcontent.aspx?Id=3220

Reserve Bank of India. (2019, December 05). 'Guidelines for ‘on tap’ Licensing of Small Finance Banks in the Private Sector'. Retrieved from https://www.rbi.org.in/scripts/bs_viewcontent.aspx?Id=3797

Reserve Bank of India. (2020, September 04). 'Master Directions – Priority Sector Lending (PSL) – Targets and Classification (Updated as on July 27, 2023)'. Retrieved from https://rbi.org.in/Scripts/BS_ViewMasDirections.aspx?id=11959

Reserve Bank of India. (2021, November 26). 'List of recommendations of “IWG to review extant ownership guidelines and corporate structure for Indian private sector banks” which have been accepted or accepted with modifications as indicated'. Retrieved from https://rbidocs.rbi.org.in/rdocs/content/pdfs/PR1253ANNE2611_1.pdf

Reserve Bank of India. (2021, November 26). 'Recommendations of the Internal Working Group to Review Extant Ownership Guidelines and Corporate Structure for Indian Private Sector Banks'. Retrieved from https://www.rbi.org.in/Scripts/BS_PressReleaseDisplay.aspx?prid=52618

Reserve Bank of India. (2024, April 01). 'Master Circular – Basel III Capital Regulations'. Retrieved from https://www.rbi.org.in/Scripts/BS_ViewMasCirculardetails.aspx?id=12652

Reserve Bank of India. (2024, April 26). 'Voluntary transition of Small Finance Banks to Universal Banks'. Retrieved from https://www.rbi.org.in/Scripts/NotificationUser.aspx?Id=12676&Mode=0


Follow at - Telegram   Instagram   LinkedIn   X   Facebook

Labels:

Comments

Post a Comment

Popular Posts

Reserve Bank of India Act, 1934 – Part-II – Section 17 to 19

The Reserve Bank of India Act, 1934 provides the statutory basis of the functioning of the Reserve Bank of India (RBI). In a series of articles, we will briefly go through the provisions of RBI Act, 1934. This is the second article in the series.  Section 17 – Business which the Bank may transact RBI shall be authorized to carry on and transact the several kinds of business hereinafter specified, namely – 17(1) – Accept deposit without interest from the Central / State Government, local authorities, banks and any other persons. 17(1A) – Accept deposit, repayable with interest, from banks or any other person under the Standing Deposit Facility Scheme, as approved by the Central Board, for the purposes of liquidity management.   Bills of Exchange (B/E) & Promissory Note (PN) Bearing 2 or more good signatures, one of which shall be of B/E & PN arising out of Maturing within 17(2)(a) Purchase, sale and rediscou...
Post a Comment
Read more

Reserve Bank of India Act, 1934 – Part-I – Preamble and Section 1 to 13

The Reserve Bank of India Act, 1934 provides the statutory basis of the functioning of the Reserve Bank of India (RBI). In a series of articles, we will briefly go through the provisions of RBI Act, 1934. This is the first article in the series. Preamble of the Act RBI to – Regulate the issue of bank notes. Keep reserves for monetary stability in India. Operate currency and credit system of the country to its advantage. The primary objective of the monetary policy is to maintain price stability while keeping in mind the objective of growth. Chapter I – Preliminary Section 1 – Short title, extent and commencement 1(1) – This Act may be called the Reserve Bank of India Act, 1934. 1(2) – The Act extends to whole of India. Chapter II - Incorporation, Capital, Management and Business Section 3 – Establishment and incorporation of Reserve Bank 3(1) – RBI to take over management of the currency from the Central Government. 3(2) – RBI to have perpetual succession, common seal, and shall by...
Post a Comment
Read more

Reserve Bank of India Act, 1934 – Part-III – Section 20 to 40

The Reserve Bank of India Act, 1934 provides the statutory basis of the functioning of the Reserve Bank of India (RBI). In a series of articles, we will briefly go through the provisions of RBI Act, 1934. This is the third article in the series.  Chapter III - Central Banking Functions Section 20 – Obligation of the Bank to transact Government business RBI shall undertake – To accept monies for account of the Central Government and to make payments up to the amount standing to the credit of its account, and to carry out its exchange, remittance and other banking operations. Management of the public debt of the Union. Section 21 – Bank to have the right to transact Government business in India The Central Government shall entrust RBI with – All its money, remittance, exchange and banking transactions in India, and shall deposit free of interest all its cash balances with RBI. The Central Government may carry on money transactions at places where RBI has no branches or agencies and m...
Post a Comment
Read more

Reserve Bank of India Act, 1934 – Part-IV – Section 42 to 45

The Reserve Bank of India Act, 1934 provides the statutory basis of the functioning of the Reserve Bank of India (RBI). In a series of articles, we will briefly go through the provisions of RBI Act, 1934. This is the fourth article in the series.  Section 42 – Cash reserves of scheduled banks to be kept with the Bank 42(1) – Every bank included in the Second Schedule shall maintain with RBI an average daily balance at a percent (notified by RBI) of its total demand and time liabilities in India. 42(1A) – RBI may direct every scheduled bank to maintain with RBI, in addition to the balance prescribed under Section 42(1), an additional average daily balance at a rate (specified by RBI). 42(1C) – RBI may specify any transaction or class of transactions to be regarded as liability in India of a scheduled bank. If any question arises as to whether any transaction or class of transactions shall be regarded as liability in India of a schedule bank, the decision of RBI thereon shall be fina...
Post a Comment
Read more

Reserve Bank of India Act, 1934 – Part-V – Section 45B to 45JA

The Reserve Bank of India Act, 1934 provides the statutory basis of the functioning of the Reserve Bank of India (RBI). In a series of articles, we will briefly go through the provisions of RBI Act, 1934. This is the fifth article in the series.  Chapter IIIA - Collection and Furnishing of Credit Information Section 45B – Power of Bank to collect credit information RBI may collect credit information from banking companies and furnish it to any banking company in accordance with section 45D. Section 45C – Power to call for returns containing credit information RBI may direct any banking company to submit statements relating to credit information. Section 45D – Procedure for furnishing credit information to banking companies A banking company may apply to RBI to provide credit information. RBI shall furnish the requested credit information without disclosing the names of the banking companies which have submitted the information. RBI may levy fees of up to Rs.25 for furnishing credit...
Post a Comment
Read more