Why is it in the news?
- Reserve Bank of India (RBI) sets eligibility criteria for Small Finance Banks (SFB) to transit into Universal banking under on-tap licensing.
| · On-tap licensing, introduced in 2016, allows banks to apply for licenses with the RBI throughout the year, departing from the previous invitation-based system. · Universal banks (UBs) offer a wide range of financial services, including commercial banking, investment banking, and insurance. · Small Finance Banks (SFBs) were previously limited to basic banking activities like accepting deposits and lending to underserved sections. |
Eligibility criteria for SFBs transitioning into UBs
- A minimum net worth of Rs 1,000 crore, scheduled bank status with a satisfactory performance track record of at least 5 years, and compliance with financial health parameters.
- Financial health requirements for transition encompass profitability with net profits in the last two financial years and asset quality with gross and net non-performing assets (GNPA and NNPA) less than or equal to 3% and 1%, respectively, over the same period.
- Additionally, SFBs must have their shares listed on a recognized stock exchange, adhere to existing promoter shareholding dilution plans approved by the RBI, and maintain a diversified loan portfolio.
| About SFBs · Small Finance Banks (SFBs) were announced in the Union budget of 2014-15. · They are registered as public limited companies under the Companies Act, 2013. · SFBs are licensed and governed under the Banking Regulation Act, 1949, without any geographical restrictions on their operations. · The minimum capital requirement for SFBs is Rs 200 crore, with exceptions for certain cases. · SFBs are mandated to extend 75% of their Adjusted Net Bank Credit (ANBC) to the priority sector, emphasizing their role in promoting financial inclusion. |
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