Reserve Bank of India set important guidelines for Small Finance Banks

Highlights: With increase in number of Small Finance Banks in India and banking related frauds and scams, RBI has imposed some new important guidelines that must be followed by Private Sector Small Finance Banks while applying for license.

In a major development for Small Finance Banks in the Private Sector, the Reserve Bank of India has issued guidelines for 'on tap' licensing and set a minimum net worth of Rs. 200 crore to set up such entities. The licensing window will be open 'on tap' basis with a minimum paid up voting equity capital or net worth requirement shall of Rs. 200 crore.

What is a Small Finance Bank and what services it can offer?

A Small Finance Bank undertakes basic banking activities of accepting deposits and lending to unserved and underserved sections, including small business units, small and marginal farmers, micro and small industries and unorganized sector entities.

What RBI said?

"For Primary (Urban) Co-operative Banks (UCBs), desirous of voluntarily transiting into Small Finance Banks (SFBs), 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," the RBI said.

Incidentally, the new worth of all SFBs currently in operation is in excess of Rs. 200 crore. As per the guidelines, SFBs will have general permission to open banking outlets from the date of commencement of operations, while payments banks can apply for conversion into SFB only after five years of operations, "if they are otherwise eligible as per these guidelines".

Source: ZeeBusiness