RBI shares roadmap to convert SFBs into universal banks; check minimum profit, NPA & other eligibility criteria

The Reserve Bank of India (RBI) has released the roadmap for the conversion of small finance banks (SFBs) into regular or universal banks. In the set of guidelines released by the central bank late on April 26, it mentioned the minimum net profit, non-performing assets ratio, shareholding pattern and other eligibility criteria for the conversion of SFBs into regular lenders.

Notably, the RBI had issued the guidelines for licensing of SFBs in India around 10 years ago. Since then, a number of significant small finance lenders have emerged in the Indian banking sector, including the likes of AU Small Finance Bank, Equitas Small Finance Bank and Ujjivan Small Finance Bank.

The RBI, in the circular released on April 26, invited applications from the eligible SFBs to convert them into regular banks.

What’s the eligibility criteria for conversion of SFBs into regular banks?

An SFB aiming to become a universal bank should have a minimum net worth of ₹1,000 crore as at the end of the previous quarter (audited) and the shares of the bank should have been listed on a recognised stock exchange, the central bank said.

It should also have a net profit in the last two financial years and GNPA and NNPA of less than or equal to 3% and 1%, respectively, in the last two financial years.

Other conditions include a prescribed CRAR (capital-to-risk weighted assets ratio) requirement and a satisfactory track record of performance for a minimum period of five years.

On shareholding pattern, the RBI said: "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 the transition to universal bank". Further, the addition of new promoters or change in promoters would not be permitted for an eligible SFB during the transition period.

"There shall be no new mandatory lock-in requirement of minimum shareholding for existing promoters in the transitioned universal bank," the circular said.

With PTI inputs