RBI lays out norms for conversion of SFBs into universal banks

The Reserve Bank of India (RBI) has recently issued guidelines for Small Finance Banks (SFBs) seeking voluntary conversion to Universal Banks (UBs).

Eligibility criteria for SFBs to become UBs:

• Eligibility for SFBs to become UBs includes having a net worth of at least Rs 1,000 crore, maintaining a scheduled status, and demonstrating a satisfactory track record of a minimum of 5 years.
• SFBs must also report a net profit in the previous two financial years, meet prescribed capital adequacy norms, and have Non-Performing Assets (NPAs) with a gross NPA less than 3% and a net NPA of less than 1%.
• Additionally, their shares must be listed on a recognized stock exchange, and while it is not mandatory to have an identified promoter, changes in promoters are restricted during the transition. Preference will be given to SFBs with a diversified loan portfolio.

About the Small Finance Bank (SFB):

• These are a type of niche banks in India aimed at providing basic banking services like the acceptance of deposits and lending, specifically targeting financial inclusion for unserved and underserved sections of the economy such as small business units, small and marginal farmers, etc.

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