Small finance banks need minimum ₹200 crore capital in on-tap licence regime

Promoters shall hold a minimum of 40% of the paid-up voting equity capital of the bank for five years (Photo: Hemant Mishra/Mint)

Mumbai: The Reserve Bank of India on Friday allowed payments banks to apply for small finance bank (SFB) licences, provided they meet the criteria. According to the new draft guidelines for on-tap licencing of private sector SFBs, the promoter of a payments bank is eligible to set up an SFB, provided both banks come under the non-operating financial holding company (NOFHC) structure.

Existing rules do not allow payments banks to lend and deposits are capped at 1 lakh per customer. A small finance bank licence will give such entities access to more deposits and boost their profitability, which is currently under pressure.

The central bank also revised the minimum paid-up capital requirement for SFBs to 200 crore instead of 100 crore earlier. It said the promoter should hold a minimum of 40% of the paid-up voting equity capital for five years. If the initial promoter shareholding is above 40%, it should be brought down to 40% within a period of five years, 30% within 10 years, and 15% in 15 years.

(Graphic: Santosh Sharma/Mint)
(Graphic: Santosh Sharma/Mint)

“Whether a promoter ceases to be a promoter or could exit from the bank, after completing the lock-in period of five years, would depend on the RBI’s regulatory and supervisory comfort/discomfort and SEBI regulations in this regard,” said RBI.

The central bank maintained that SFBs should be listed within three years of reaching a net worth of 500 crore.

Earlier, the RBI had denied reverse-merger proposals at Equitas and Ujjivan, insisting that Equitas Small Finance Bank and Ujjivan Small Finance should be listed separately as per the licencing agreement. The central bank recently turned down a proposal by Equitas Holdings seeking an extension of the listing deadline for its subsidiary Equitas Small Finance Bank.

The RBI also allowed primary urban cooperative banks to convert into SFBs, provided they comply with the on-tap licencing guidelines. The minimum net worth of such SFBs will be 100 crore and has to be increased to 200 crore within five years from commencement of business.

SFBs offer basic banking services, accepting deposits and lending to unserved and underserved sections, including small businesses, small and marginal farmers, micro and small industries, and the unorganized sector.