The country might see more banks soon. The Reserve Bank of India (RBI) has invited applications from several small finance banks for this purpose.
If everything goes smoothly, RBI may grant them the status of regular or universal banks.
Currently, there are around a dozen small finance banks in the country, including Au Small Finance Bank, Equitas Small Finance Bank, and Ujjivan Small Finance Bank.
Net worth of small bank should be Rs 1000 crore
In November 2014, RBI issued guidelines for operating small finance banks in the private sector.
These guidelines state that for a small bank to qualify as a Regular or Universal Bank, its net worth should be Rs 1000 crore or more at the end of the previous quarter.
Additionally, the bank’s shares should be listed on the stock exchange, and it should have recorded a profit in the last two financial years.
Additionally, the small bank’s gross Non-Performing Assets (NPA) should be less than 3 percent, and net NPA should be less than 1 percent in the last two financial years.
Moreover, it should have a Capital to Risk Weighted Assets Ratio (CRAR) and a satisfactory track record of 5 years.
Reserve Bank had issued rules in December, 2019
The Central Bank has stated that there are no specific rules for the promoters of Small Finance Banks.
However, the promoters must remain the same even after the bank becomes a Universal Bank.
Changing promoters during this transition is not allowed. The RBI circular mentioned that there is no lock-in period for the minimum shareholding of existing shareholders during the formation of a universal bank.
In December 2019, the Reserve Bank outlined the process of converting a small finance bank into a universal or regular bank.
Bandhan Bank and IDFC First Bank are the newest
In 2015, RBI granted permission to Bandhan Bank and IDFC First Bank to become universal or regular banks. Since then, no new bank has been approved for this status.
