Voluntary transition of Small Finance Banks to Universal Banks

The Reserve Bank of India (RBI) has detailed a transition path for Small Finance Banks (SFBs) seeking to convert into Universal Banks. According to Paragraph 14 of the “Guidelines for ‘on-tap’ Licensing of Small Finance Banks in Private Sector” dated December 5, 2019, this conversion is contingent upon various conditions.

The conditions include achieving scheduled status satisfactory track record of performance for a minimum period of five years, listing shares on a recognized stock exchange, maintaining a minimum net worth of ₹1,000 crore, meeting prescribed Capital to Risk (Weighted) Assets Ratio (CRAR) requirements, demonstrating a net profit over the past two financial years, and maintaining Gross Non-Performing Assets (GNPA) and Net Non-Performing Assets (NNPA) of less than or equal to 3 percent and 1 percent respectively over the same period.

Furthermore, conditions regarding shareholding patterns are outlined, emphasizing continuity of existing promoters, disallowing addition or change of promoters during the transition, and confirming no new mandatory lock-in requirements for existing promoters. The guidelines prioritize SFBs with diversified loan portfolios.

Eligible SFBs seeking transition must provide a detailed rationale for the move and submit applications in accordance with relevant RBI guidelines and regulations. Upon transition, the bank will be subject to all norms, including the Non-Operative Financial Holding Company (NOFHC) structure where applicable.

Interested SFBs are instructed to submit their applications for transition, along with requisite documents, to the Department of Regulation, RBI, Central Office, Mumbai. These instructions are effective immediately and shall apply to all Small Finance Banks.