SMALL FINANCE BANKS -
ECONOMY
News: SFBs should be worth Rs 1,000
cr to become universal banks, says RBI
What's in the news?
●
The Reserve Bank of India (RBI) has said small
finance banks (SFBs) should have a minimum
net worth of Rs 1,000 crore to become universal banks in accordance with
the on-tap licensing norms.
Key Takeaways from the
Circular:
According to the central bank, SFBs aspiring to become a universal bank
need to have following conditions such as
●
Scheduled status with a satisfactory track record of performance
for a minimum period of five years.
●
The shares
of the bank should have been listed on a
recognised stock exchange.
●
Net profit in the last two financial years.
●
Gross non-performing assets (GNPA) less than or equal to
three percent in the last two financial years.
●
Net non-performing assets (NNPA) less than or equal to
one percent in the last two financial years.
Small Finance Bank:
●
SFBs are specialized
banks that are licensed by RBI to provide financial services and products
to low-income individuals and underserved communities, including microfinance
and micro-enterprise services, as well as other basic banking services.
●
SFBs are granted the scheduled bank status after being operational and are deemed
suitable under section 42 of the RBI
Act, 1934.
Objectives:
●
To provide financial
inclusion to these segments of the population who are often excluded from
the traditional banking system.
●
SFBs help them to have access to financial products
such as small loans, savings, insurance, and other basic banking services.
Eligibility:
●
Resident individuals/professionals (Indian citizens),
singly or jointly, each having at least 10 years of experience in banking and
finance at a senior level are eligible for SFBs.
●
Companies and Societies in the private sector that are owned and controlled by residents and have a successful track
record of running their businesses for at least a period of five years.
●
Existing Non-Banking Finance Companies (NBFCs), Micro Finance Institutions
(MFIs), and Local Area Banks (LABs) in the private sector,
that are controlled by residents and having successful track record of running
their businesses for at least a period of five years, can also opt for
conversion into small finance banks after complying with all legal and
regulatory requirements of various authorities.
Regulation:
●
SFBs are registered as public limited companies under the Companies Act, 2013 and are
governed by Banking Regulations Act, 1949, RBI Act, 1934 and other relevant
Statutes and Directives from time to time.
Norms to be Followed by
SFBs:
●
Capital to Risk Weighted Assets Ratio: They are required to
maintain a minimum CRAR of 15%.
●
Priority Sector Lending: They are required to
extend 75% of their Adjusted Net Bank Credit to Priority Sector Lending.
●
SFBs are required to open at least 25% of their
total branches in unbanked rural areas.
●
Required paid up capital: The minimum paid-up
voting equity capital for small finance banks shall be Rs.200 crore.