Context:
RBI sets Eligibility Criteria for SFB to transit into Universal banking under on-tap licensing.
Universal Banks (UBs):
- Banks that offer a wide range of financial services, beyond commercial banking and investment banking, such as insurance.
- Until now, SFBs were allowed to primarily undertake basic banking activities of acceptance of deposits and lending to unserved and underserved sections
- On-tap licensing – Introduced in 2016 for allowing banks to apply for banking licenses with the RBI throughout the year.
- Prior to this, banking licenses were granted upon invitation of applications by RBI to prospective players.
- Eligibility for SFBsto transitioning into UBs –
- SFBs must have a minimum net worth of Rs 1,000 crore.
- SFBs must be scheduled banks with a satisfactory track record of performance for a minimum of 5 years.
- Should have net profits in the last 2 Financial Years.
- Gross non-performing assets (G-NPA) and net NPA (N-NPA) must be less than or equal to 3% and 1%, respectively, over the last 2 FYs.
- Shares must be listed on a recognized stock exchange.
- No addition of new promoters or changes to existing promoters are permitted during the transition.
Small Finance Bank:
- Specialized banks that are licensed by RBI to provide financial services and products to low-income individuals and underserved communities
- Objective – To provide financial inclusion by offering basic banking services to the marginal segments of the population who are often excluded from the traditional banking system.
- Registration – Registered as a public limited company under the Companies Act, 2013.
- Eligibility –
- Resident individuals/professionals (Indian citizens) having at least 10 years of experience in banking and finance at a senior level
- Companies and Societies in the private sector, that is owned and controlled by residents and having successful track record of running their businesses for at least a period of 5 years.
- Existing Non-Banking Finance Companies (NBFCs), Micro Finance Institutions (MFIs), and Local Area Banks (LABs) in the private sector, that are controlled by residents and having successful track record of running their businesses for at least a period of 5 years
- Other norms to be followed by SFBs –
- Required to maintain a minimum Capital to Risk Weighted Assets Ratio (CRAR) of 15%.
- Required to extend 75% of their Adjusted Net Bank Credit to Priority Sector Lending.
- Required to open at least 25% of their total branches in unbanked rural areas.
- Minimum paid-up voting equity capital for small finance banks shall be Rs.200 crore.
- Governed by – Banking Regulations Act, 1949; RBI Act, 1934 and other relevant Statutes and Directives from time to time
Source: Economic Times
Previous Year Question
Which one of the following links all the ATMs in India?
[UPSC Civil Service Exam – 2018 Prelims]
(a) Indian Banks’ Association
(b) National Securities Depository Limited
(c) National Payments Corporation of India
(d) Reserve Bank of India
Answer: (c)
