RBI opens ‘on tap’ Licensing of Small Finance Banks in the Private Sector

RBI announced the decision in yday’s monetary policy:

In the Second Bi-monthly Monetary Policy Statement, 2019-20 of June 06, 2019, it was announced that the Draft Guidelines for ‘On tap’ Licensing of Small Finance Banks will be issued by the end of August 2019. Accordingly, the Draft Guidelines were placed on the RBI’s website on September 13, 2019 inviting comments from the stakeholders and members of the public. After examining the responses received, the ‘On tap’ Licensing Guidelines for Small Finance Banks have now been finalised and are being issued today.

The guidelines are here:

Major changes from the earlier Guidelines on Small Finance Banks dated November 27, 2014, are

(i) The licensing window will be open on-tap;

(ii) minimum paid-up voting equity capital / net worth requirement shall be ₹ 200 crore;

(iii) for Primary (Urban) Co-operative Banks (UCBs), desirous of voluntarily transiting into Small Finance Banks (SFBs) initial requirement of net worth shall be at ₹ 100 crore, which will have to be increased to ₹ 200 crore within five years from the date of commencement of business. Incidentally, the net-worth of all SFBs currently in operation is in excess of ₹ 200 crore;

(iv) SFBs will be given scheduled bank status immediately upon commencement of operations;

(v) SFBs will have general permission to open banking outlets from the date of commencement of operations;

(vi) Payments Banks can apply for conversion into SFB after five years of operations, if they are otherwise eligible as per these guidelines.

Hmm. Last one is interesting.

How many PBs will have five years of operations? Moreover, RBI should add that atleast some part of the 5 year operations should be in profits!

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