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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


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