The Reserve bank of India on 13th September, 2019 has released on its website the draft guidelines for issue of ‘on tap’ license to small finance banks in the private sector and invited comments from stakeholders and members of the public.
Highlights of the draft guidelines:
Registration and licensing: The small financial bank (“SFB”) shall be registered as a public limited company under the Companies Act 2013 and will be governed by the provision of the Banking Regulation Act, 1949 and Reserve Bank of India Act, 1934. SFB will be given scheduled bank status once they commence their operations.
Procedure for application: As per Rule 11 of the Banking Regulation (Companies) Rules, 1949, applications shall be submitted in the prescribed form (Form III). In addition, the applicants should furnish the business plan as per paragraph 11 and other requisite information as per the Annex II. Applications along with documents shall be sent to The Chief General Manager, Department of Banking Regulation, RBI contained in an envelope superscripted “Application for Small Finance Bank”.
Eligibility criteria: Following class of persons will be eligible for registration and Proposal from public sector entities and large industrial house/business groups, and autonomous bodies will not be entertained:
- Resident individuals/professionals (Indian citizens), singly or jointly, each having at least 10 years of experience in banking and finance at a senior level;
- Companies and Societies in the private sector, that are owned and controlled by residents (as per FEMA Regulations), with successful track record of running their businesses for at least a period of five years, will be eligible as promoters to set up small finance banks.
- Existing NBFCs, Micro finance institutions and local area banks in the private sector, which are controlled by residents, and having successful track record of running their businesses for at least a period of five years can opt for conversion into small finance banks.
Scope of activities of small finance bank: The activities of SFB shall be accepting deposits and lending to unserved and underserved sections including small business units, small and marginal farmers, micro and unorganised sector entities.
Capital requirement: The minimum paid-up voting equity capital for SFB shall be Rs.200 crore, except for such small finance banks which are converted from UCBs and the SFB is required to maintain capital adequacy ratio of 15% of its risk weighted assets on a continues basis.
Promoters’ contribution: The promoters should hold a minimum of 40% of the paid up voting equity capital of the bank, which would remain locked in for 5 years from the date of commencement of the bank’s business. A promoter will not be granted licenses for both universal bank and small finance bank even if the proposal is to set them up under the NOFHC structure.
Other conditions such as Customer Grievances Cell, foreign shareholding, Corporate Governance, Voting rights and transfer / acquisition of shares, Prudential norms etc. will also be applicable to SFB.
Comments on the Draft Guidelines can be sent by stakeholders and members of the public till 12th October 2019.
Click here to read Guidelines.
