Rs200 cr capital proposed; promoters should hold 40 pc initially
MUMBAI: Following the successful functioning of the ten small finance banks licensed by the Reserve Bank of India (RBI) as per the guidelines issued in 2014, the RBI has on Friday announced draft guidelines for ‘on tap’ licensing of small finance banks (SFBs) in the private sector.
It was on November 27, 2014, the Reserve Bank first issued the guidelines for licensing of small finance banks (SFBs) in the private sector.
The process of licensing culminated in granting in-principle approval to 10 applicants and they have since established the banks.
An RBI release said the objectives of setting up of small finance banks will be for furthering financial inclusion by (i) provision of savings vehicles primarily to unserved and underserved sections of the population, and (ii) supply of credit to small business units; small and marginal farmers; micro and small industries; and other unorganised sector entities, through high technology-low cost operations.
Capital requirement
The minimum paid-up voting equity capital for small finance banks shall be Rs200 crore, except those are converted from urban cooperative banks (UCBs).
The SFBs will be required to maintain a minimum capital adequacy ratio of 15 per cent of its risk weighted assets (RWA) on a continuous basis, subject to any higher percentage as may be prescribed by RBI from time to time.
Tier I capital should be at least 7.5 per cent of RWAs. Tier II capital should be limited to a maximum of 100 per cent of total Tier I capital.
Promoters’ contribution
The promoters shall hold a minimum of 40 per cent of the paid-up voting equity capital of the bank, which shall be locked-in for a period of five years from the date of commencement of business of the bank.
If the initial shareholding by promoters in the bank is in excess of 40 per cent of paid-up voting equity capital, it should be brought down to 40 per cent within a period of five years.
Further, the promoters’ stake should be brought down to a maximum of 30 per cent of the paid-up voting equity capital of the bank within a period of 10 years, and to a maximum of 15 per cent within 15 years from the date of commencement of business of the bank.
Further, in the case of such small finance banks which are converted from UCBs, while the initial lock in period for promoters will be similar to other small finance banks, the requirement of bringing down the promoters’ holding (to 40/30/15 per cent over the period of 5/10/15 years) would commence from the date of reaching net worth of Rs200 crore (as against from date of commencement of business, for other small finance banks).
After the small finance bank reaches the net worth of Rs500 crore, listing will be mandatory within three years of reaching that net worth. Small finance banks having net worth of below Rs500 crore could also get their shares listed voluntarily, subject to fulfilment of the requirements of the capital markets regulator.
The foreign shareholding in the small finance bank would be as per the extant Foreign Direct Investment (FDI) policy for private sector banks, subject to paragraph 6 above.
Prudential norms
The small finance bank will be subject to all prudential norms and regulations of RBI as applicable to existing commercial banks including requirement of maintenance of Cash Reserve Ratio (CRR) and Statutory Liquidity Ratio (SLR). No forbearance would be provided for complying with the statutory provisions.
Loan size
The maximum loan size and investment limit exposure to a single and group obligor would be restricted to 10 per cent and 15 per cent of its capital funds, respectively. Further, in order to ensure that the bank extends loans primarily to small borrowers, at least 50 per cent of its loan portfolio should constitute loans and advances of up to Rs25 lakh on an on-going basis.
NBFCs/MFIs/LABs converting into SFB
An existing NBFC/MFI/LAB could apply to convert itself into a small finance bank, after complying with all legal and approval requirements from various authorities.
In such a case, the entity shall have a minimum net worth of Rs200 crore or it shall infuse additional paid-up voting equity capital to achieve net worth of Rs200 crore within eighteen months from the date of in-principal approval or as on the date of commencement of operations, whichever is earlier.
