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Eligibility criteria for SFB to transit into Universal banking set by RBI


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.

Subject:

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