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RBI issues final guidelines for on-tap licence to small finance banks(SFB)

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On December 5, 2019, India’s central Bank, the Reserve Bank of India(RBI) has released the final guidelines on the facility to apply ‘on- tap’ for licenses to Small Finance Banks (SFBs).RBI 'on-tap' licensing of Small Finance BanksKey guidelines:

i.Under the decree, the minimum paid-up voting equity capital has been doubled to Rs 200 crore from Rs 100 crore. The minimum required capital condition of Rs 200 crore will not be applicable to the entities operating from primary (urban) cooperative banks (UCBs), non-banking financial company, micro financial institution (MFIs), local regional bank/payment bank. However, UCBs transiting into SFBs will require of net worth of Rs 100 crore, which will have to be increased to Rs 200 crore within five years.

ii.The payment banks which have completed 5 years of operations, are eligible to become SFBs if they meet the regulatory requirements. If the promoter of a payments bank desires to set up an SFB separately, both the banks should come under the non-operative financial holding company (NOFHC) structure.

iii.Scheduled bank status will be provided to SFBs immediately upon commencement of operations & they also will have general permission to open banking outlets from the date of commencement of operations.

iv.Background: On 27 November 2014, the RBI had last issued guidelines for licensing of Small Finance Banks in the private sector & granted licenses to 10 companies interested to launch small finance banks as part of its effort to further financial inclusion.

About Small finance banks (SFBs) :
These are a type of niche banks in India. Banks with a small finance bank license can provide basic banking service of acceptance of deposits and lending.
The objective behind these to provide financial inclusion to sections of the economy not being served by other banks, such as small business units, small and marginal farmers, micro and small industries and unorganized sector entities.

About RBI:
– Mumbai, Maharashtra
Formation– 1 April 1935
Governor– Shaktikanta Das
Deputy Governors– 4 (BP Kanungo, N S Vishwanathan, Mahesh Kumar Jain, 1 is yet to be appointed)