The Reserve Bank of India (RBI) on Thursday laid down operating guidelines for small finance banks (SFBs). While the norms are mostly identical with those for scheduled commercial banks (SCBs), the RBI has subjected SFBs to, as mentioned in the draft guidelines, higher capital requirement.
They have, however, unlike SCBs, been exempted from maintaining a capital conservation buffer (CCB).
As per norms, SFBs have been mandated to maintain a minimum capital of 15% of their risk weighted assets (RWAs) of which common equity tier I (CET I) capital has to be 6%. Currently, the same for SCBs is 9% and 5.5%, respectively.
Regarding credit risk, while SFBs have been allowed to sell non-performing assets (NPAs), they have been barred from buying them. Similarly, they have been permitted to sell their loans to other banks, but are barred from buying loans from other banks and financial institutions.
Hailing the guidelines, R Baskar Babu, CEO, Suryoday Micro Finance, one of 10 entities with SFB licence, said, “We welcome the operating guidelines since they have brought in a lot of clarity with respect to issues like PSL sub-classification, business correspondent (BC) structures, grandfathering of existing loans, etc, which were otherwise subjected to interpretations.”
In September 2015, the RBI, as part of its objective to further financial inclusion, had granted in-principle approvals to 10 entities (from among 72 applicants) for setting up SFBs. Rishi Gupta, MD & CEO, FINO PayTech, said the guidelines would allow payment banks to set the stage for a next phase of disruption in banking in India and differentiate from standard banks.