RBI sets eligibility rules for SFBs seeking universal banking licence

The Reserve Bank of India (RBI) on Friday said that small finance banks willing to seek universal banking licence need to have at least ₹1,000 crore of net worth while the regulator laid down a detailed set of eligibility rules for such transition.

RBI said that listed and profitable small finance banks with gross non-performing assets ratio less than 3% for last two fiscals can apply for universal banking licence. Additionally, they need to have a net non-performing assets ratio less than 1% for the last two financial years. They also need to be profitable for the last two fiscals.

Among small finance banks, AU and Ujjivan have net worth of more than Rs 1,000 crore. While AU met the profitability and asset quality eligibility norms for the past two fiscal years, Ujjivan is yet to announce its annual numbers for FY24.

Both these lenders, along with Equitas, announced their intent to seek universal banking licence, which offers more regulatory flexibility in terms of doing business. Equitas is not immediately eligible to seek the licence as its net NPA ratio was higher than 1%. Eligible SFB will be required to furnish a detailed rationale as to why they want such a transition, RBI said.

"Such conversion shall be subject to the SFB's fulfilling minimum paid-up capital/ net worth requirement as applicable to universal banks, satisfactory track record of performance as an SFB for a minimum period of five years and RBI's due diligence exercise," the regulator said.

A bank with a diversified loan portfolio will be preferred for such transition. RBI has not set any mandatory requirement for an eligible SFB to have an identified promoter. However, the existing promoters of the eligible SFB shall continue as the promoters on transition to universal bank.