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In this article, we would discuss about small finance bank licences.
Taking forward its efforts to maximise financial inclusion, the Reserve Bank of India approved ‘in-principle’ small finance bank (SFB) licences to 10 entities on September 16. The core objectives of the chosen entities would be to increase savings vehicles and provide credit to small business units, small and marginal farmers, among others through high technology low cost operations.
Chosen applicants
The central bank received 72 applications for SFBs, which included non-banking financial institutions (NBFCs), micro finance institutions (MFIs) and local area banks (LABs).
Out of the 10 entities picked, 8 are MFIs, namely – Disha Microfin Private Limited, Ahmedabad, Equitas Holdings P Limited, Chennai, ESAF Microfinance and Investments Private Limited, Chennai, Janalakshmi Financial Services Private Limited, Bengaluru, RGVN (North East) Microfinance Limited, Guwahati, Suryoday Micro Finance Private Limited, Navi Mumbai, Ujjivan Financial Services Private Limited, Bengaluru, and Utkarsh Micro Finance Private Limited, Varanasi.
The remaining 2 are Au Financiers, an NBFC and Capital Local Area Bank, the largest local area bank in Jalandhar.
The ‘in-principle’ approval will be valid for 18 months during which the applicants need to fulfil the requirements under the guidelines and other conditions as may be stipulated by the RBI.
The central bank’s statement read, “On being satisfied that the applicants have complied with the requisite conditions laid down by it as part of in-principle approval, the RBI would consider granting them a licence for commencement of banking business under Section 22(1) of the Banking Regulation Act, 1949.” They cannot begin banking operations until regular licence is issued.
Features of SFBs
1. SFBs can carry out basic banking activities like accepting deposits and lending credit.
2. Their main focus will be to lend to the unbanked and underbanked sections.
3. SFBs are permitted to give out mutual funds, insurance and pension products.
4. SFBs cannot set up subsidiaries to undertake non-banking financial activities.
5. Any financial and non-financial services activities of the promoters should not mingle with the bank’s regular working.
Guidelines laid down by the RBI
1. The minimum paid-up equity capital for a small finance bank shall be Rs.100 crore.
2. Like regular banks, SFBs would have to maintain CRR and SLR with the RBI.
3. 75% of SFBs’ adjusted net bank credit (ANBC, which is defined as net bank credit plus permitted non-SLR investments held in the held-to-maturity category or credit equivalent amount of off-balance-sheet exposure, whichever is higher) extended to priority sector and have atleast 25 branches in unbanked rural areas.
4. 50% of loan portfolio to constitute loans & advances of upto Rs.25 lakh
5. 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
6. The promoter’s minimum contribution to the SFB’s paid-up equity capital should be 40% in the initial 5 years. The stake should be reduced to 30% within a period of 10 years, and to 26% within 12 years.
7. Within 3 years of reaching Rs.500 crore net worth, it would be mandatory for the banks to have their shares listed on the exchange.
8. The total foreign investment allowed would be upto a maximum of 74% of the paid-up capital of the bank.
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