How SMALL Finance Banks Can Become BIG Universal Banks?
Tamal Bandyopadhyay
Consulting Editor, Business Standard & Senior Adviser, Jana Small Finance Bank. Linkedin Top Voice in 2015 & 2019
The Reserve Bank of India is ready to open the door for the small finance banks to become big universal banks.
What are the eligibility criteria for an SFB to become a universal bank?
# Scheduled status with a satisfactory track record of performance for a minimum
period of five years
All SFBs enjoy the scheduled status
# Shares of the bank should have been listed on a recognised stock exchange
All SFBs are listed on bourses
# A minimum net worth of ?1,000 crore
Many meet this criterion
# 15% capital adequacy ratio
All SFBs meet this criterion
# Must post net profits in the last two financial years
Not all of them meet this condition
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# Maximum 3% gross NPAs and 1% net NPAs in last two financial years
Not all of them meet this condition
@ There is no mandatory requirement for an eligible SFB to have an identified promoter. However, the existing promoters of the eligible SFB, if any, shall continue as the promoters on transition to Universal Bank
@ Addition of new promoters or change in promoters shall not be permitted for an eligible SFB while transitioning to Universal Bank
@ There shall be no new mandatory lock-in requirement of minimum shareholding for existing promoters in the transitioned Universal Bank
@ There shall be no change to the promoter shareholding dilution plan already approved by the Reserve Bank
@ The eligible SFBs having diversified loan portfolio will be preferred
A few of them have diversified portfolios while microfinance dominates the portfolios of many
Finally, the eligible SFB shall be required to furnish a detailed rationale for such transition
This is the softest requirement. The rationale of the transition is clear: Most SFBs are running two banks within one -- an SFB for assets and a universal bank for liabilities. While they are giving loans to people who are not served by the universal banks, for deposits they are competing with the universal banks in metro markets.
Let's wait and watch ...
Banking Professional | Client-Centric Strategist | Tech Enthusiast
6 个月If Government of India is aiming for 3-4 Big PSU banks in the near future then RBI must make up mind for having more universal banks to serve every corner of its country.
GSK | Ex Tyco| Ex AstraZeneca | Ex ITC Published Author of Bestsellers of 2023, Book launched in Indian Parliament and Longlisted by Gaja Capital in 2024. Student of Law. Follow Policies. Views expressed are Personal.
6 个月Congratulations Dada for doing such a great story. It's always a great pleasure reading your work be it book or column ??
?? AgriStack: 3-Minute Loans at 7% Interest, ?5Cr/Month in Commissions, AI & Satellite Solutions, Plugged ?6000Cr Govt Leakages, Serving Farmers Across 6 States, 20 Banks, RBIH Incubated, Transforming TSP
6 个月Can Small Banks become Big Banks? Do SFBs have the resources to compete with larger banks? Social Mission vs. Profits:Will SFBs continue to serve their original underbanked customers, or will they focus on bigger profits? Tech Upgrade Needed? Are SFBs' technology systems strong enough for a Universal Bank's needs? New Leadership, New Direction?Will new board members change the way SFBs operate? Rural vs. Urban Focus?Will SFBs abandon their rural customer base as they expand?
Area Credit Head For Rajasthan State
6 个月Very informative article ????
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7 个月What are your views on the current merger of Fincare and AU BANK??