A majority of the 10 small finance banks (SFBs) currently operating in the country may transform from being differentiated banks to universal banks as a natural progression, according to top officials of some of these banks.
The case of these banks is bolstered as most of them meet the minimum capital requirement of 500 crore for transitioning into a universal bank and have about four-five years of track record of operations.
The current set of SFBs, which were set up between 2016 and 2018, want to take a shot at becoming universal banks as their own turf is likely to get crowded. Some of the microfinance institutions, payment banks and urban co-operative banks may convert into SFBS.
HIGHER PSL & CAR CRITERIA
Moreover, the priority sector lending/PSL (entailing loans to agriculture, MSMEs, export credit, education, housing, social infrastructure and renewable energy segments) and capital adequacy ratio (CAR). criteria for SFBS are significantly higher than that for universal banks.
PSL requirement of SFBs is at 75 per cent of their adjusted net bank credit (ANBC) against 40 per cent for universal banks. SFBS are required to maintain a minimum capital adequacy ratio (CAR) of 15 per cent against only 9 per cent for universal banks.
Universal banks offer a wide range of financial services, including retail and corporate banking, and investment banking and insurance (via) subsidiaries).
A LOGICAL STEP
Baskar Babu R, MD & CEO, Suryoday SFB, said: "Universal bank allows us to continue doing all the things we are currently doing as an SFB. But the reverse is not necessarily true - a small finance bank cannot do all that a universal bank can do. So, it is logical and relevant to graduate into a universal bank.
"So, with the experience of five years, banks, which are fairly confident in terms of managing the transition, will logically go through that..."Babu added that the majority of SFBS meet the minimum net worth criteria of 500 crore prescribed for universal banks.
The 'Report of the Reserve Bank of India (RBI) Internal Working Group to Review Extant Ownership Guidelines and Corporate Structure for Indian Private Sector Banks' emphasised that if an SFB aspires to transit into a universal bank, such transition will not be automatic. It would be subject to fulfilling minimum paid-up capital/net worth requirement as applicable to universal banks. Further, the transition would be subject to the SFB's satisfactory track record of performance and the outcome of the Reserve Bank's due diligence exercise.