 

Parameter

guidelines

 

Key
°

Prior approval required from the RBI for branch expansion of SFBs in the initial five years; in March 2020,
RBI liberalised the prior approval requirement and granted permission to all existing SFBs to open banking
outlets subject to the Unbanked Rural Centre requirements. It has further exempted all existing SFBs from
seeking approval of the RBI for undertaking non-risk-sharing simple financial service activities, which do
not require commitment of own fund, after three years of commencement of business by the SFB; and
SEBs cannot be a BC to other banks; however, they can have their own BC network.

 

Prudential
norms

Requirement of maintaining CRR and SLR as applicable to existing commercial banks;

75% of ANBC should be given to sectors eligible under PSL as per the RBI; 40% as per PSL prescriptions
and remaining 35% under the PSL, where the SFB has a competitive advantage; and

Minimum 50% of loan book to constitute loans of ticket size up to % 2.5 million that can be relaxed by the
RBI.

 

Capital
requirement

Minimum paid up capital @ 2 billion; and
Minimum tier 1 capital: 7.5% of RWA; minimum capital adequacy ratio of 15% of RWA.

 

Shareholding

For a holding company structure, initial shareholding by promoter in the bank should be brought down to
40% within a period of five years. Minimum paid-up capital of promoter should be at least 40%, which
should be bought down to 30% within 10 years and to a maximum of 15% within 15 years of
commencement of operations

In case of SFBs which have transitioned from urban cooperative banks (UCBs), the promoters shall hold a
minimum of 26% of paid-up voting equity capital at all times during the first five years from the
commencement of the bank’s business. The promoter’s holding in this case may be brought down to 15%
over a period of 15 years

Mandatory listing requirement of SFBs within three years of reaching a net worth of 5 billion; and

FDI as per the FDI policy for private sector banks, amended from time to time.

 

Branch
requirement

 

 

Required to have 25% of their branches in rural unbanked centers (population shall be less than 10,000)
within one year of commencement of operations.

 

Source: RBI, CRISIL Research

On December 5, 2019, the RBI released guidelines for on-tap licensing of SFBs which will allow the applicant to approach
the regulator. The RBI seems to prefer applicants willing to set up banks in underserved or unserved clusters such as in
the north-east, east and central regions in the initial stages and will prefer promoters who have a diversified shareholding
and a timeframe for listing the bank. The central bank would also be open to liberation of scope of activities for SFBs
after a stabilization period of five years and a review of the SFBs by the central bank. The minimum paid-up capital of =
2 billion is required for the on-tap licence of SFBs, except for those that are converted from UCBs. The listing of the bank
will be mandatory within three years after the SFB reaches the net worth of 2 5 billion for the first time.

Further, the following tables provide details in relation to the Tier-wise classification based on population and population
group, in accordance with the RBI:

Details of Tier-wise classification of centers based on population

 

 

 

 

 

 

 

 

Classification of centers (tier-wise) Population (as per 2011 census)
Tier 1 100,000 and above
Tier 2 50,000 to 99,999
Tier 3 20,000 to 49,999
Tier 4 10,000 to 19,999
ier 5 5,000 to 9,999
Tier 6 Less than 5,000

 

 

Population-group wise classification of centers Population (as per 2011 census)

 

Rural center

Population up to 9,999

 

Semi-urban center

From 10,000 to 99,999

 

Urban center

From 100,000 to 999,999

 

 

Metropolitan center

1,000,000 and above

 

 

Source: RBI, CRISIL Research

SFBs, NBFCs — Digitalization

The financial services sector is evolving with increasing digital disruptions. Customers are also witnessing enhanced
experience as lenders offer personalised products and services using analytics. In order to expand their reach quickly,
SFBs and NBFCs are moving beyond physical branches and using alternative electronic delivery channels.

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