Informist, Friday, Apr 26, 2024

MUMBAI – The Reserve Bank of India notified norms for voluntary transition of small finance banks to universal banks, effective today. Small finance banks should have a scheduled status with a satisfactory track record of performance for a minimum period of five years, the RBI said.

The performance parameters include reporting net profit for the last two financial years. The bank must also have a gross and net non-performing asset ratio below 3% and 1%, respectively, for the two previous financial years.

The bank should be meeting the capital to risk-weighted assets ratio prescribed by the Reserve Bank of India. The RBI requires to maintain a minimum capital to risk-weighted assets ratio of 15%. The bank should also have a minimum net worth of 10 bln rupees at the end of the previous quarter, the RBI said.

Lastly, shares of the small finance bank should be listed on a recognised stock exchange. Coming to the shareholding pattern of the bank, there is no mandatory requirement for an eligible small finance bank to have an identified promoter.

However, addition of new promoters or change in promoters will not be permitted for an eligible small finance bank while transitioning to a universal bank.

In December 2019, the RBI issued guidelines for 'on tap' licensing of small finance banks in the private sector. In those guidelines, the central bank said that if a small finance bank aspires to transit into a universal bank, it will not be automatic, but would be subject to the bank applying to RBI for the conversion and fulfilling minimum paid-up voting equity capital and net worth requirement applicable to universal banks. End

Reported by Kabir Sharma

Edited by Aditya Sakorkar

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