In a bid to get more participants in the small finance banking space, the Reserve Bank of India on Friday said it is thinking of permitting small private entities, payment banks, NBFCs, MFIs and cooperative banks to apply and convert into a small finance bank (SFB).

RBI clarified only small private entities will be allowed to set up SFBs, and the government would not entertain proposals from public sector entities and large industrial house or business groups, and autonomous bodies. Joint ventures between two or more promoter groups will also not be allowed to apply. In case of a holding company, the holding company could have another financing firm, but it must not do the same businesses as the SFB.

The minimum capital requirement was Rs 100 crore in 2014. RBI proposes to keep it the same -- with the SFB having to increase minimum net worth to Rs.200 crore within five years of operation.

While promoters of universal banks will be not be allowed to start an SFB, promoters of payment banks will be allowed, said RBI. With this proposal, the extent of operations of payment banks would increase -- as under current regulations payment banks are not allowed to lend. They are also not allowed to collect deposits above Rs 1 lakh from customers. 

As a small finance bank they would be allowed to take deposits of any amount. They would also be allowed to lend to anyone, provided the focus is on small lending to individuals, SMEs, farmers and small scale industries. SFBs can also provide remittances, have ATMs and sell pensions in addition (payment banks can sell only MFs, insurance and third-party loans).

RBI has however maintained that SFBs should get listed within three years of operations after reaching a networth of Rs 500 crore. A proposal that does not bring any relief for Equitas Holdings that has currently been told to list by the regulator.

In 2014, RBI has instructed that promoter's holding in a SFB should be at least 40% and gradually brought down to 26% within 12 years of operations. Now RBI proposes the promoter should hold a minimum 40% for a lock-in period of first five years -- and reduce stake to maximum of 30% within 10 years, and maximum of 15% in 15 years. #casansaar (Source - TNN, Times of India)