On January 06,2020 the Reserve Bank of India (RBI), gave approval to Uttar Pradesh based Shivalik Mercantile Co-operative Bank Ltd to convert to a small finance bank (SFB). With this, Shivalik Mercantile became the 1st urban cooperative bank (UCB) to be converted into an SFB since the release of reformed RBI guidelines which came out 2 years ago.Grant of License: The RBI will grant licence to Shivalik Mercantile bank for the commencement of banking business under Section 22 (1) of the Banking Regulation Act, 1949 as an SFB.
RBI Guidelines for UCB to SFB conversion:
i.Conversion guidelines: RBI granted transition of a UCB into an SFB under the scheme on voluntary transition of urban co-operative bank into a small finance bank issued on September 27, 2018. It was part of the recommendations made by the high powered committee on UCBs led by the then RBI deputy governor Rama Subramaniam Gandhi.
- Under the guidelines, a promoter should be an Indian resident with 10 years of experience in banking and finance.
- The promoter or the promoter groups should conform to the definition of the Securities and Exchange Board of India(SEBI)- (Issue of Capital & Disclosure Requirements) Regulations, 2009 and RBI guidelines on fit and proper.
ii.Transition eligibility: The UCB will get 18 months (1.5years) to comply with the above mentioned scheme. Banks having a minimum net worth of Rs 50 crore and capital to risk weighted assets (RWA) ratio of 9% will be eligible to apply for voluntary transition to SFB.
- UCB compliance: The UCBs should also have to comply with the latest guidelines for on-tap licensing of SFBs in the private sector. Under this guideline, SFBs should maintain a minimum net worth of ₹100 crores from the date of commencement of business.
- SFB status maintenance requirement: SFBs will have to maintain a minimum capital adequacy ratio of 15% of RWA on a continuous basis. They should also have to increase the minimum paid-up voting equity capital to ₹200 crores within 5 years of the date of commencement of business.
iii.Loans by SFBs: The SFBs are required to extend 75% of their loans to sectors under priority sector lending (PSL) such as loans to agriculture, micro, small and medium enterprises, education, housing, and others.
- 50% of the SFB loan portfolio should constitute loans and advances up to ₹25 lakhs.
About Shivalik Mercantile Bank ltd:
Fact- Shivalik bank is the largest UCB in Uttar Pradesh
Established- 5 September 1998 in Saharanpur, Uttar Pradesh.
Registered under- Multi-State Cooperative Societies Act 2002.
Acquisition made- Madhya Pradesh’s Dhar Bank in 2010 and achieved multi state bank status.
Chairman- Yashvir Kumar Gupta.