The Reserve Bank of India (RBI) on Friday said that eligible small finance banks (SFBs) can apply with the regulator to become universal banks in accordance with the on-tap licesning norms.
SFBs are allowed to apply for a universal bank license after successful completion of five years of operations, but subject to fulfilling minimum paid-up voting equity capital, net worth requirement as applicable to universal banks.
According to RBI’s guidelines, in order for a SFB to transition to universal bank, they must be listed on recognised stock exchange, have a minimum net worth of Rs 1,000 crore as at the end of previous quarter, meet minimum capital requirements of SFBs and must post net profit in last two financial years.
The SFBs must also have gross and net-non performing asset ratio (GNPA, NNPA) of not more than 3% and 1%, respectively, over the last two financial years.
“There is no mandatory requirement for an eligible SFB to have an identified promoter. However, the existing promoters of the eligible SFB, if any, shall continue as the promoters on transition to Universal Bank,” the RBI said, adding that eligible SFBs having diversified loan portfolio will be preferred for the universal bank license.
There are a total of 11 SFBs in India currently, after Fincare SFB merged with AU SFB recently. According to data sourced from Capitaline, only AU SFB has reported its GNPA and net NPA ratio below the required threshold for the last two fiscals, and has posted net profits in the same period.
After merger of Fincare SFB with AU SFB, the bank’s net worth has increased to Rs 14,981 crore as on March end, whereas its GNPA and NNPA ratio stood at 1.67% and 0.55% as on March end. The lender posted its FY24 annual profit at Rs 1,592 crore, higher than Rs 1,428 crore in FY23.
AU SFB and Ujjivan SFB have already announced their intention of applying for an universal bank license, going ahead.