Reserve Bank of India (RBI), the central bank of the country, has released draft guidelines for ‘on tap’ licensing of small finance banks (SFBs).
The move will enable the applicants to seek central bank approval on an ongoing basis to set up small finance banks in the private sector.
In the draft guidelines, the central bank noted that it will prefer proposals with diversified shareholding and a time frame for listing of the bank.
Resident individuals with a minimum of ten years of experience in banking and finance, private sector companies controlled by Indian residents are eligible to set up SFBs.
The guidelines proposed minimum paid-up voting equity capital for SFBs to be INR2bn ($2.82m). A minimum of 40% should be held by the promoters for a lock-in period of five years.
Once they reach a net worth of INR5bn, the SFBs are required to be listed within three years. The Basel II norms will be applicable to the lenders, unless stated otherwise.
Additionally, existing NBFCs, micro finance institutions and local area banks can also convert to a small finance bank, after meeting all stipulated guidelines.
Setting up more SFBs is aimed to drive further financial inclusion in the country. These lenders will serve as basic banking entities for underbanked and unbanked people offering saving services. They will also offer credit to SMEs, unorganised sector and farmers.
The drafted guidelines are open for suggestions and comments from all stakeholders till 12 October this year.
Earlier, the central bank issued guidelines for SFBs licencing on November 2014. Since then, it has issued in-principle approval to ten applicants, which have established the banks.