Payment banks can now apply to convert themselves into a Small Finance Bank if they have completed five years of operation.
The Reserve Bank of India on Thursday released the guidelines for ‘on tap’ licensing of Small Finance Banks in the private sector and set a minimum net worth of Rs 200 crore to set up such entities.
As part of the new guidelines, payments banks which are eligible to set up an SFB have to come under the non-operating financial holding company (NOFHC) structure.
As per the current rules, lending and deposits from payment banks such as the Paytm Payments Bank and the Airtel Payments Bank is capped at Rs 1 lakh. If they can convert to an SFB (provided they meet the guidelines), it will allow them to borrow money from the RBI and give them access to more deposits.
A small finance bank undertakes basic banking activities of accepting deposits and lending to unserved and underserved sections, including small business units, small and marginal farmers, micro and small industries and unorganised sector entities. The small finance banks will be given scheduled bank status once they commence their operations.
RBI had issued licences to 10 companies in November 2014 in a bid to improve financial inclusion. One major change to the guidelines issued then is that the licensing window for SFBs will be on-tap. This means that RBI can accept applications and give licences for SFBs through the year.
"For Primary (Urban) Co-operative Banks (UCBs), desirous of voluntarily transiting into Small Finance Banks (SFBs), initial requirement of net worth shall be at Rs 100 crore, which will have to be increased to Rs 200 crore within five years from the date of commencement of business," the RBI said.
However, this Rs 200 crore minimum capital requirement is not applicable to SFBs which were converted from urban cooperative banks non-banking financial companies, microfinance institutions, local area banks and payment banks
Incidentally, the net worth of all SFBs currently in operation is in excess of Rs 200 crore.
As per the guidelines, SFBs will have general permission to open banking outlets from the date of commencement of operations, while payments banks can apply for conversion into SFB only after five years of operations, "if they are otherwise eligible as per these guidelines".
As per the new guidelines, any individual or professional having at least 10 years of experience in banking and finance at a senior level can also set up a small finance bank either singly or jointly.
Promoters of SFB’s shall always hold a minimum of 40% of the paid-up voting equity capital of the bank during the first five years from the date of commencement of business. If the initial shareholding by promoters in the bank is in excess of 40% of paid-up voting equity capital, it should be brought down to 40% within a period of five years, the RBI said.