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

Credit Cards and Debit Cards

Reserve Bank of India (RBI) has issued directions on issuance of credit cards and debit cards. To whom are the directions applicable? The directions are applicable to the following Regulated Entities (REs) – Commercial Banks  Small Finance Banks (SFBs) Regional Rural Banks (RRBs) Primary (Urban) Co-operative Banks (UCBs) Non-Banking Financial Companies (NBFCs) for all layers – NBFC-Investment and Credit Companies (NBFC-ICC) NBFC-Factor  NBFC-Micro Finance Institutions (NBFC-MFI)  Housing Finance Company (HFC)  What is a credit card? Credit Card is a physical / virtual payment instrument issued with a pre-approved revolving credit limit that can be used to purchase goods and services or draw cash advances. What is a debit card? Debit Card is a physical / virtual payment instrument linked to a Savings Bank / Current Account which can be used to withdraw cash, make online payments, do Point of Sale (PoS) terminal / Quick Response (QR) code transactions, fund transfer, e...
Post a Comment
Read more

Cash Reserve Ratio (CRR) and Statutory Liquidity Ratio (SLR)

Reserve Bank of India (RBI) has issued the directions on maintenance of Cash Reserve Ratio (CRR) and Statutory Liquidity Ratio (SLR) by banks. To whom are the directions applicable? The directions are applicable to the following Regulated Entities (REs) – Commercial Banks  Small Finance Banks (SFBs) Payments Banks (PBs) Local Area Banks (LABs) Regional Rural Banks (RRBs) Primary (Urban) Co-operative Banks (UCBs) Rural Co-operative Banks – State Co-operative Banks (StCBs) District Central Co-operative Banks (DCCBs) What is CRR? Every bank shall maintain in India by way of cash reserve, a sum equivalent to such percent of its Net Demand and Time Liabilities (NDTL) in India, as the RBI in terms of Section 42(1) of the RBI Act, 1934 (for scheduled banks) and Section 18(1) of the Banking Regulation Act (BR Act), 1949 (for non-scheduled banks) [including provisions of Section 18(1) of the BR Act as applicable to co-operative banks], may specify. What is incremental CRR? In terms of Secti...
Post a Comment
Read more

Special Rupee Vostro Accounts (SRVAs)

Reserve Bank of India (RBI) has consolidated the guidelines governing Special Rupee Vostro Accounts (SRVAs). Who can open and maintain Special Rupee Vostro Accounts (SRVAs)? Authorised Dealer (AD) banks in India may open Special Rupee Vostro Accounts (SRVAs) of its branch outside India or a bank resident outside India. Which transactions can be settled through SRVA? The settlement of cross-border trade transactions through SRVA is an additional arrangement for invoicing, payment and settlement of exports and imports in Indian Rupee (INR).  All permissible capital and current account transactions under Foreign Exchange Management Act (FEMA) may be settled through the SRVA.  AD banks maintaining SRVA are permitted to open additional current account for exporter / importer, exclusively for settlement of export / import transactions. What can be the source and use of funds in SRVA? SRVA may be funded by way of inward remittances or transfer from other repatriable INR accounts in t...
Post a Comment
Read more

Payment of Agency Commission to Agency Banks (ABs) and Disbursement of Government Pension by ABs

Reserve Bank of India (RBI) has issued guidelines on the conduct of Government business by Agency Banks (ABs), payment of agency commission to ABs and disbursement of Government pension by ABs. Who are ABs? ABs mean all Public Sector Banks (PSBs), scheduled Private Sector Banks (PVBs), scheduled Payments Banks (PBs), and scheduled Small Finance Banks (SFBs) appointed by the RBI under Section 45 of the RBI Act, 1934, by mutual agreement, to carry out Government banking business of the Central Government (CG) / State Governments (SGs). What is agency commission? Agency commission means the remuneration paid by the RBI to an AB in consideration of it acting as an agent of the RBI in the conduct of general banking business of the CG and the SGs at the places and in the manner specified in the agreement between the RBI and the bank, with the exception of the functions relating to the management of the public debt. What are the guidelines on appointment of ABs? Any eligible bank which intend...
Post a Comment
Read more

Highlights of RBI Annual Report 2025-26 – Chapter 7 to 12

Reserve Bank of India (RBI) has published its annual report for the financial year 2025-26. In a series of articles, we will go through the highlights of the report. This is the fifth and final article in the series.  Chapter 7 – Public Debt Management The ways and means advances (WMA) limit for the Government of India (GoI) for H1:2025-26 (April to September 2025) was fixed at ₹1,50,000 crore and for H2:2025-26 (October 2025 to March 2026) was fixed at ₹50,000 crore. The RBI entered into an agreement with the Government of National Capital Territory of Delhi (GNCTD), under Section 21A(1) of the RBI Act, 1934, to carry on the general banking business of GNCTD and manage its rupee public debt. The WMA limit of GNCTD was set at ₹890 crore, taking the aggregate WMA limit of all the states / UTs to ₹61,008 crore. The RBI introduced Separate Trading of Registered Interest and Principal of Securities (STRIPS) in the state government securities. Retail Direct Gilt (RDG) account – An au...
Post a Comment
Read more