The Reserve Bank of India issued guidelines on Friday for small finance banks that are looking to convert into universal banks through on-tap licensing.
This comes after the central bank laid out a transition path for small finance banks in December 2019 to convert to universal banks. "The SFBs may choose to continue as a differentiated bank if they aspire to transit into a universal bank," the RBI said.
These provisions come into effect immediately.
Following are the eligibility criteria, as per the regulator's release on Friday:
Small finance bank must have a scheduled status with a satisfactory track record of performance for at least five years.
Shares of the bank must be listed on a stock exchange.
Bank must have a minimum net worth of Rs 1,000 crore as of the end of the previous quarter.
Bank must meet the minimum capital adequacy requirement of 15%.
Bank must have reported a net profit in the last two financial years.
The gross non-performing asset ratio must be less than or equal to 3%, and the net non-performing asset ratio must be 1% in the last two financial years.
Further, in terms of shareholding pattern, the RBI stated that there is no compulsory requirement for an eligible small finance bank to have an identified promoter. However, the existing promoters of the eligible SFB, if any, will continue as promoters when transitioning to Universal Bank.
No new promoters can be onboarded or changed during the transition, the RBI said. There will be no new compulsory lock-in requirement of minimum shareholding for existing promoters when the small finance bank becomes a universal bank, the central bank said.
The small finance bank will not be allowed to make changes in the promoter shareholding dilution plan, which is already approved by the RBI.
The preference for a license to operate as a universal bank lies with eligible small finance banks. Whichever small finance bank fits the bill in accordance with the aforementioned criteria may submit its application for transition to a universal bank, the RBI said.
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