The Reserve Bank of India has come out with final guidelines for ‘on-tap’ licensing of small finance banks. It has now doubled the minimum capital requirement to Rs 200 crore from Rs 100 crore set earlier. They also have to maintain a tier I capital of at least 7.5% of their risk weighted assets while tier II capital should be limited to a maximum of 100% of the total tier I capital. RBI has also allowed payments banks which have completed 5 years of operations to convert into small finance banks after complying with regulatory requirements. It said in view of the inherent risk of a small finance banks, they shall be required to maintain a minimum capital adequacy ratio of 15% of its risk weighted assets on a continuous basis. The minimum capital requirement of Rs 200 crore will not be applicable to those banks which have already started operations after converting from urban cooperative banks, NBFCs/microfinance institutions/local area banks and payment banks. RBI has also stipulated that companies and societies in the private sector which are owned and controlled by residents and having successful track record of running their businesses for a period of at least 5 years will also be eligible to promote SFBs. Existing NBFCs, MFIs, and local area banks in the private sector, that are controlled by residents, and having successful track record of running their businesses for at least 5 years, can also opt for conversion into SFBs after complying with all regulatory requirements. The promoters can hold a minimum of 40% of the paid-up voting equity capital of the bank at all times during the first 5 years from the date of commencement of business. RBI had granted in-principle approval to 10 applicants to set up SFBs in September 2015.
