Successful applicants include Jalandhar-based Capital Local Area Bank, Bengaluru-based Janalakshmi Financial Services, Au Financiers (India) Ltd, Disha Microfin Pvt Ltd, Equitas Holdings P Ltd, ESAF Microfinance and Investments, RGVN (North East) Microfinance, Suryoday Micro Finance, Ujjivan Financial Services and Utkarsh Micro Finance.
The “in-principle” approval, which is valid for 18 months, comes after RBI gave a similar approval to 11 payments bank applicants in August
The RBI said going forward, it intends to use the learning from this licensing round to “appropriately revise” the guidelines and move to giving licences more regularly, “that is, virtually ‘on tap'”.
Small finance banks will primarily undertake basic banking services such as accepting deposits and extending lending to underserved sections such as small business units, micro industries and unorganised sector
MUMBAI : The Reserve Bank of India has given its “in-principle” approval to 10 entities for setting up small finance banks. Successful applicants include Jalandhar-based Capital Local Area Bank and Bengaluru-based Janalakshmi Financial Services Pvt Ltd.
The “in-principle” approval, which is valid for 18 months, comes after the central bank gave a similar approval to 11 payments bank applicants in August.
The other successful small finance bank applicants are: Au Financiers (India) Ltd, Disha Microfin Pvt Ltd, Equitas Holdings P Ltd, ESAF Microfinance and Investments Pvt Ltd, RGVN (North East) Microfinance Ltd, Suryoday Micro Finance Pvt Ltd, Ujjivan Financial Services Pvt Ltd, and Utkarsh Micro Finance Pvt Ltd.
The RBI had received 72 applications for small finance bank licences. “On being satisfied that the applicants have complied with the requisite conditions laid down by it as part of ‘in-principle’ approval, the RBI would consider granting them a licence for commencement of banking business…Until a regular licence is issued, the applicants cannot undertake any banking business,” the central bank said.
RBI said going forward, it intends to use the learning from this licensing round to “appropriately revise” the guidelines and move to giving licences more regularly, “that is, virtually ‘on tap'”. In the last 18 months, the RBI has awarded universal and differentiated banking licences to 23 entities. IDFC Ltd and Bandhan Financial Services, which were awarded universal bank licences in April 2014, have subsequently been given regular licence.
While Bandhan Financial Services’ Bandhan Bank started operations on Aug 23, IDFC Bank will launch operations on Oct 1. Greater financial inclusion has been the driving force behind the RBI’s differentiated banking licences approach, and the central bank said today an important factor in choosing the small finance bank licencees was “proposed reach into unbanked areas and underserved sections of the population”.
OPERATIONS, OWNERSHIP
Small finance banks will primarily undertake basic banking services such as accepting deposits and extending lending to underserved sections such as small business units, micro industries and unorganised sector, the central bank had said in its final guidelines.
Further, they will be required to extend 75% of their adjusted net bank credit to sectors eligible for classification as priority sector lending by the RBI.
Small finance banks’ maximum loan size and investment limit exposure to a single and group borrower has been capped at 10% and 15% of its capital funds, respectively.
In order to ensure that the bank extends loans primarily to small borrowers, at least 50% of small finance bank’s loan portfolio must consist of loans of up to 2.5 mln rupees.
After an initial stabilisation period of five years, the RBI may review and relax the exposure limits.
RBI has mandated that promoters’ initial minimum capital contribution must be at least 40%, which will be locked in for a period of five years from start of operations.
However, in cases where the promoters’ shareholding is already below 40% but above 26%, the RBI won’t insist on a minimum initial contribution of 40%. If the initial promoter shareholding is more than 40%, it must be pared below 40% within five years. Further, the promoter’s stake must be brought down to 30% of the paid-up voting equity capital of the bank in 10 years, and to 26% in 12 years.
In case the net worth of a small finance bank reaches 5 bln rupees, it would be mandatory for it to get listed within three years of reaching the said net worth.
For individuals and entities other than promoters, shareholding in excess of 10% of the paid-up equity capital of the bank is not allowed. Foreign shareholding in small finance banks would be as per the foreign direct investment policy for private sector banks, where aggregate foreign holding is allowed up to 49% under the automatic route and up to 74% under the approval route.
