RBI Issues Guidelines for SFB's to Voluntary Transition Into a Universal Bank

RBI Issues Guidelines for SFB's to Voluntary Transition Into a Universal Bank

RBI's plan to allow voluntary transition of SFB's to a universal bank is going to allow to offer the whole range of banking products and financial services.

Vikrant DurgaleUpdated: Saturday, April 27, 2024, 12:13 PM IST
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RBI's plan to allow voluntary transition of SFB's to a universal bank is going to allow SFB's to offer the whole range of banking products and financial services, including loans to larger businesses, huge kudos to this transition.

These are guidelines that SFB's have to fulfill so they can transition to a universal bank.

They have to keep up a minimum of five years of adequate performance history. Their shares must also be listed on an accepted stock exchange, and as of the previous quarter's end, they had to have an audited net worth of at least Rs 1,000 crore.

Moreover, they should have a net profit in the previous two fiscal years and satisfy the required Capital to Risk-weighted Assets Ratio (CRAR) for SFBs. A crucial component is asset quality, wherein the last two fiscal years' GNPA and NNPA must have been less than or equal to 3% and 1%, respectively.

In addition, the RBI has specified guidelines for shareholding practices during the shift. An identified promoter is not required to be present for an eligible SFB to qualify. During the transition, current promoters will remain promoters, and no new promoters can be added or changed.

For current promoters, there won't be any additional mandatory lock-in requirements, and the RBI-approved promoter shareholding dilution plan won't alter. For the transition, eligible SFBs with a varied loan portfolio will be given priority.

SFBs requesting a transition must submit an application in the required form to the RBI's Department of Regulation in Mumbai, along with a thorough reasoning for the change.

SFBs were established after the RBI made the decision to grant special licenses to payment banks and banks that offer small loans. The majority of these banks are former microfinance firms, or NBFCs, who have opted to apply for bank licenses. As of right now, 12 SFBs exist. Even though a particular promoter is not required, the ownership structure that the RBI has already approved should not change.

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