SFBs need to be worth of ₹1000 cr to become universal banks: RBI guidelines

SFBs need to be worth of ₹1000 cr to become universal banks: RBI guidelines

In accordance with the one tap licensing norms, the small finance banks must have a minimum net worth of ₹1000 cr to become eligible for working as universal banks, as per the guidelines issued by the Reserve Bank of India.

As per the RBI, only those small finance banks which have scheduled status and a satisfactory track record of performance can aspire to become a universal bank. A small finance bank must have five years of satisfactory track record of performance to become eligible for a universal bank.

Some other criteria:

• There are some other criteria for SFBs to become universal banks including the shares of SFBs must be listed on a recognised stock exchange to become universal banks.
• Furthermore, RBI cleared that SFBs must have a net profit in the last two financial years to apply for universal banks. The gross non performing assets and net non performing assets of SFBs need to have less than or equal to three percent and one percent respectively in the last two financial years to become a universal bank.
• As per the RBI circular, an identified promoter is not mandatory for an eligible SFB to become a universal bank. The existing promoters of the eligible SFBs can continue on the transitions of universal banks.
• The new promoters of SFBs and change in promoters are not allowed to transition to the universal banks. These new promoters will not be permitted by RBI.
• In the transition of universal bank, there will be no mandatory lock in requirement of minimum shareholding of existing promoters.
• The promoter shareholding dilution plan which is already approved by RBI can not be changed during the process.
• The SFBs which clear all the criteria and have a diversified loan portfolio will be preferable by the RBI for the transition of universal banks.

What are universal banks?

A universal bank is a financial institution that offers a wide range of banking services, including commercial banking, investment banking, and sometimes insurance services, catering to both individual and corporate clients.

Example: ICICI group etc

Important Questions:

• What is a universal bank?
• Describe the criteria of SFBs to become universal banks.

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