The Reserve Bank of India (RBI) on Friday came out with guidelines for the voluntary conversion of small finance banks (SFBs) into universal banks.
“Such conversion shall be subject to the SFB’s fulfilling minimum paid-up capital/net worth requirement as applicable to universal banks, satisfactory track record of performance as an SFB for a minimum period of five years, and the RBI’s due diligence exercise,” the banking regulator said a release.
The eligibility criteria for an SFB to transition into a Universal bank will now be as follows:
Currently there are 11 Small Finance Banks namely:
1. AU Small Finance Bank
2. Equitas Small Finance Bank
3. Ujjivan Small Finance Bank
4. Utkarsh Small Finance Bank
5. Shivalik Small Finance Bank
6. Suryoday Small Finance Bank
7. Jana Small Finance Bank
8. Unity Small Finance Bank
9. Capital Small Finance Bank
10. North East Small Finance Bank
11. ESAF Small Finance Bank
Out of these
Shivalik, Unity and North East Small Finance Bank are not listed on stock exchanges.
Capital Small Finance Bank has NNPA of greater than 1% also networth is around 700cr.
Suryoday Small Finance Bank has GNPA & NNPA both above required limits.
ESAF Small Finance Bank has GNPA & NNPA both above required limits.
Jana Small Finance Bank has GNPA & NNPA both above required limits.
Utkarsh Small Finance Bank has GNPA just marginally above required limits.
Ujjivan Small Finance Bank has GNPA within limits for only last year. But requirement is for last 2 FY. So Ujjivan has to wait and maintain this FY.
Equitas Small Finance Bank has NNPA within limits for only last year. But requirement is for last 2 FY. So Equitas also has to wait and maintain this FY.
Only AU Small Finance Bank meets all the eligibility criterias but is in a process to merge with Fincare Small Finance Bank which would require 9-12 months.
Also there are certain criterion which cannot be calculated like "satisfactory" track record and RBI's due diligence excercise.
It would be interesting to see how it turns out for these SFBs as it has to offer a higher interest rate to attract deposits. A change in SFBs’ status to a universal bank would enhance their acceptability, enable them to attract liabilities at lower rates, and benefit from lower priority sector lending norms of 40 per cent as opposed to the current 75 per cent applicable to SFBs.
Credits - Different news sources - Livemint, Business Standard and Moneycontrol.
GNPA & NNPA values - Self research.
Eligibility criteria - RBI Circular.
Link to RBI Circular - https://m.rbi.org.in//Scripts/BS_CircularIndexDisplay.aspx?Id=12676
“Such conversion shall be subject to the SFB’s fulfilling minimum paid-up capital/net worth requirement as applicable to universal banks, satisfactory track record of performance as an SFB for a minimum period of five years, and the RBI’s due diligence exercise,” the banking regulator said a release.
The eligibility criteria for an SFB to transition into a Universal bank will now be as follows:
- scheduled status with a satisfactory track record of performance for a minimum period of five years;
- shares of the bank should have been listed on a recognised stock exchange;
- having a minimum net worth of ₹1,000 crore as at the end of the previous quarter (audited);
- meeting the prescribed CRAR requirements for SFBs;
- having a net profit in the last two financial years; and
- having GNPA and NNPA of less than or equal to 3 percent and 1 percent respectively in the last two financial years.
Currently there are 11 Small Finance Banks namely:
1. AU Small Finance Bank
2. Equitas Small Finance Bank
3. Ujjivan Small Finance Bank
4. Utkarsh Small Finance Bank
5. Shivalik Small Finance Bank
6. Suryoday Small Finance Bank
7. Jana Small Finance Bank
8. Unity Small Finance Bank
9. Capital Small Finance Bank
10. North East Small Finance Bank
11. ESAF Small Finance Bank
Out of these
Shivalik, Unity and North East Small Finance Bank are not listed on stock exchanges.
Capital Small Finance Bank has NNPA of greater than 1% also networth is around 700cr.
Suryoday Small Finance Bank has GNPA & NNPA both above required limits.
ESAF Small Finance Bank has GNPA & NNPA both above required limits.
Jana Small Finance Bank has GNPA & NNPA both above required limits.
Utkarsh Small Finance Bank has GNPA just marginally above required limits.
Ujjivan Small Finance Bank has GNPA within limits for only last year. But requirement is for last 2 FY. So Ujjivan has to wait and maintain this FY.
Equitas Small Finance Bank has NNPA within limits for only last year. But requirement is for last 2 FY. So Equitas also has to wait and maintain this FY.
Only AU Small Finance Bank meets all the eligibility criterias but is in a process to merge with Fincare Small Finance Bank which would require 9-12 months.
Also there are certain criterion which cannot be calculated like "satisfactory" track record and RBI's due diligence excercise.
It would be interesting to see how it turns out for these SFBs as it has to offer a higher interest rate to attract deposits. A change in SFBs’ status to a universal bank would enhance their acceptability, enable them to attract liabilities at lower rates, and benefit from lower priority sector lending norms of 40 per cent as opposed to the current 75 per cent applicable to SFBs.
Credits - Different news sources - Livemint, Business Standard and Moneycontrol.
GNPA & NNPA values - Self research.
Eligibility criteria - RBI Circular.
Link to RBI Circular - https://m.rbi.org.in//Scripts/BS_CircularIndexDisplay.aspx?Id=12676
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