Small finance banks are in focus after RBI issue norms for universal banking license
Upstox
3 min read • Updated: April 30, 2024, 6:01 PM
Summary
The Reserve Bank of India (RBI) recently issued guidelines outlining the path for small finance banks (SFBs) to transition into universal banks. While only AU Small Finance Bank currently meets the eligibility criteria, the clarity provided by the RBI has boosted market sentiment for all SFBs.
Most small finance bank (SFBs) shares have gained after the Reserve Bank of India recently released new guidelines to lay out a clear framework for these new-age banks to convert into universal banks.
Though only one SFB among the existing players, AU Small Finance Bank, meets the eligibility criteria for converting into a universal bank, more clarity on the transition path for such lenders has boosted the market sentiment.
AU Small Finance Bank gained around 6% to hit a three-month high on Monday after the release of RBI guidelines on April 26. AU SFB shares slipped on Tuesday but were still up around 5% since Friday.
AU SFB is the largest among 11 small finance banks and meets the eligibility criteria laid out by the RBI. The SFB has a net worth of ₹12,560 crore and reported profits for the last two fiscals. The bank’s gross and net non-performing assets were less than 3% and 1%, respectively.
Among other small finance banks, Capital Small Finance Bank has gained around 2% since the release of RBI guidelines.
Suryoday Small Finance Bank has also gained around 2% while Jana SFB has rallied more than 19%. However, Jana SFB saw sharp gains on Tuesday after the announcement of its strong financial results for the March quarter, amid the focus on the lenders in the segment after RBI guidelines.
Also Read: Jana Small Finance Bank shares zoom 20% on strong Q4 results
Jana SFB also announced that it would avail the opportunity extended by the central bank and would be applying for a universal bank licence.
Only Equitas Small Finance Bank and Ujjivan Small Finance Bank were little changed since Friday while ESAF Small Finance Bank declined marginally.
Equitas Small Finance Bank has expressed its intent to transform into a universal bank but it may take up to two years to become eligible due to high Net NPA ratio. Ujjivan SFB also needs to report GNPA of below 3% for the March quarter to become eligible for universal bank licence.
RBI guidelines for conversion of SFBs
The Reserve Bank on April 26 laid out eligibility criteria for an SFB to transition into a Universal bank.
As per the notification, the SFB should have a scheduled status with a satisfactory track record of performance for a minimum period of five years.
Shares of the SF should have been listed on a recognised stock exchange and the bank needs a minimum net worth of ₹1,000 crore at the end of the previous quarter.
The bank should meet the prescribed CRAR requirements for SFBs and have a net profit in the last two financial years.
The SFB should also have GNPA and NNPA of less than or equal to 3% and 1% respectively in the last two financial years.