RBI sets Eligibility Criteria for Small Finance Banks (SFB) to transit into Universal banks under on-tap licensing | Current Affairs | Vision IAS
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    RBI sets Eligibility Criteria for Small Finance Banks (SFB) to transit into Universal banks under on-tap licensing

    Posted 27 Apr 2024

    2 min read

    • Universal banks (UBs) are banks that offer a wide range of financial services, beyond commercial banking and investment banking, such as insurance. 
      • Until now, SFBs were allowed to primarily undertake basic banking activities of acceptance of deposits and lending to unserved and underserved sections

     

    • On-tap licensing: It was introduced in 2016 for allowing banks to apply for banking licenses with the RBI throughout the year.
      • Prior to this, banking licenses were granted upon invitation of applications by RBI to prospective players.

     

    • Eligibility for SFBs to transitioning into UBs
      • Net Worth: SFBs must have a minimum net worth of Rs 1,000 crore. 
      • Status: SFBs must be scheduled banks with a satisfactory track record of performance for a minimum of 5 years.
      • Financial Health:
        • Profitability: Should have net profits in the last two Financial Years.
        • Asset Quality: Gross non-performing assets (G-NPA) and net NPA (N-NPA) must be less than or equal to 3% and 1%, respectively, over the last two FYs. 
      • Stock Listing: Shares must be listed on a recognized stock exchange.
      • Promoter Requirements: No addition of new promoters or changes to existing promoters are permitted during the transition.
        • No changes are allowed to the promoter shareholding dilution plan previously approved by the RBI.
      • Preference: SFBs with a diversified loan portfolio will be preferred. 

     

    About Small Finance Bank (SFB)

    • Genesis: Announced in the Union budget of 2014-15. 
    • Registrations: Registered as a  public limited company under the Companies Act, 2013.
    • Licensing: Licensed and governed under the Banking Regulation Act, 1949 and have no restrictions on where to operate.        
    • Capital Requirement: 200 crore (except for some SFBs) 
    • Mandates for financial inclusion: They are required to extend 75% of their ANBC (Adjusted Net Bank Credit) to the priority sector. 
    • Tags :
    • RBI
    • Small Finance Banks
    • SFB
    • universal banking
    • On-tap licensing
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