Payments banks, non-banking finance companies (NBFCs), micro-finance institutions (MFIs), and local area banks (LABs) in the private sector can convert themselves into a small finance bank (SFB), the Reserve Bank of India said on Friday in the draft guidelines for ‘on-tap’ licensing of SFBs. The NBFCs, MFIs and LABs in the private sector must be controlled by residents and have a successful track record for at least a period of five years.
Further, promoters of SFBs must hold a minimum of 40% of the paid-up voting equity capital of the bank, which would be locked in for five years. If the initial promoter shareholding is in excess of 40% of the paid-up voting equity capital, it will have to be brought down to 40% within a period of five years,the RBI said. The promoter stake will have to be brought down to a maximum of 30% of the paid-up voting equity capital within 10 years, and to a maximum of 15% within 15 years from the date of commencement of business.
The SFB, to be initially registered as a public limited company under the Companies Act, 2013, will be given scheduled bank status after commencement of operations. The promoters or promoter groups can choose to set up the SFB either as a standalone entity or under a holding company, which will act as the promoting entity of the bank.
It further stated that local focus and ability to serve smaller customers will be the key criteria in licensing such banks.
Therefore, proposals from public sector entities and large industrial houses/business groups, including from non-bank financial companies promoted by them, among other large entities, will not be entertained, it stated.
Applicants for SFB licences will have to furnish business plans and project reports along with their applications. The business plan will have to address the bank’s proposal to achieve objectives behind setting up of SFBs. In the case of an NBFC/micro-finance institutions applicant, the plan will have to address how the existing business will fold into the bank or divested of.
More importantly, in case of a deviation from the stated business plan post issuance of the license, the RBI may consider restricting the bank’s expansion, effecting change in management and imposing other penal or regulatory measures as necessary.
The minimum paid-up voting equity capital for SFBs will be Rs 200 crore. After net worth reaches Rs 500 crore, listing will be mandatory within three years of reaching that net worth. SFBs having net worth below Rs 500 crore can also get shares listed voluntarily. The central bank has given until October 12 for public comments on the guidelines formulated for continuous authorisation of the licences.
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Source: Financial Express