There is good news for on-tap Bank licence aspirants. The Reserve Bank of India (RBI) on Friday released the final guidelines for the on-tap licence of small finance banks (SFB).
This would allow applicants to approach the banking regulator on an ongoing basis.
The revised norms allow primary urban cooperative banks and payment banks to convert into an SFB after five years of operations if they are otherwise eligible. The new norms leave scope for NBFCs and MFIs, too, to explore the SFB route.
The minimum paid-up voting equity capital or net worth elitesteroids.net requirement has been set at Rs.200 crore, up from Rs.100 crore asset earlier.
Incidentally, the net-worth of all SFBs currently in operation is in excess of Rs.200 crore.
Most banking sector observers believe that the return on equity is likely to decline during initial years of transition to SFB.
They expect tight liquidity conditions to prompt many NBFCs to explore the SFB model to address the liabilities issue and hence we expect good response for seeking an SFB licence.
NBFCs that would like to finalize their business plans will have to improve there organization structure, systems, and processes before applying for the licence to ensure a better success rate.
Deposits mobilization will remain the key success factor for the SFBs and though the existing SFBs have scaled up their deposits, some of them continue to remain the key success factor for the SFBs and though the existing SFBs have scaled up their deposits, some of them continue to remain dependent on wholesale deposits.
For primary urban cooperative banks that intend to convert into SFB, the initial requirement of net worth shall be at Rs.100 crore, which will have to be increased to Rs 200 crore within five years from the date of commencement of business.
Payments Banks have also been allowed to apply for conversion into SFBs after five years of operations if they are meet other eligibility norms said the RBI.
SFBs will be given scheduled bank status immediately upon commencement of operations. SFBs will have general permission to open banking outlets from the date of commencement of operations.
Investors, other than promoters, will not be allowed to hold more than 10% stake in the SFB.
However, in the case of non-banking finance companies, micro-finance institutions, and local area banks, where non-promoters hold more than 10% limit, the RBI may consider giving three years time to dilute the stake.
The RBI will appoint a Standing External Advisory Committee (SEAC) with a three-year tenure to process applications. Successful applicants will be granted an ‘in-principle’ approval, valid for 18 months.
The listing of SFBs will be mandatory within three years after it reaches the net worth of Rs 500 crore for the first time. The RBI first issued guidelines for licensing SFBs in November 2014.
What do these regulations mean for existing SFB players?
We believe that existing players like Equitas, AU Small Finance Bank, Ujjivan SFB would stand benefitted here as new norms for SFBs will make it tougher for new entrants in this space.
Also, payments banks are unlikely to offer any fresh competition to existing SFBs as the RBI has stated that the existing payment banks need to have a 5-year track record before they apply for SFB status.
Net we believe that the runway for growth for existing SFBs looks good over the medium term.
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