RBI turns down small finance banks' request to dilute listing norms

Regulator says any such move could be seen as easing licensing terms for these banks

The Reserve Bank of India (RBI) has put its foot down and told small finance banks (SFBs) that it will not relax listing norms for them. The current norms stipulate that SFBs list within three years of commencement of business. 

The central bank has also deferred a meeting with SFBs, originally slated for this week, till next month. People in the know said the RBI had conveyed to SFBs that any relaxation in norms would be tantamount to easing licensing terms for these banks. 

“The RBI does not have a precedent of modifying licensing norms and, therefore, to uphold their sanctity, it will not entertain such a request from SFBs,” said a source.  

The bone of contention over listing norms is the valuations at which these banks will hit the exchanges. If they are to list both their non-operative financial holding company (NOFHC) as well as the banking arms, it would result in the value of the banking arms being stripped of the listed NOFHC and residing in a separate listed entity. 

In some cases, SFBs have just not put on enough bulk in their business to derive valuation from the bourses. The central bank had, in September 2015, issued 10 SFB licences when Raghuram Rajan was governor. 

Barring Au Financiers, others awarded licences were largely microfinance institutions (MFIs). Among them, Ujjivan and Equitas listed their respective NOFHCs — Ujjivan Financial Services and Equitas Holdings — in 2016, while Au Financiers listed its banking arm Au Small Finance Bank, a year later. The seven other licence awardees are yet to tap the bourses.

Although concerns pertaining to listing are confined to the banking arms of Ujjivan and Equitas — which need to list in FY20 — the sector made a case for relaxation as a class, with RBI governor Shaktikanta Das. 

People in the know said SFBs hoped for Das to take a more sympathetic view, unlike his predecessor Urjit Patel, but the governor refused to budge.

“The meeting called this week has been deferred to June and requirements with respect to listing of SFBs stand where they were,” confirmed Samit Ghosh, managing director and chief executive officer of Ujjivan SFB. “We will be in compliance with the listing of SFBs,” added P N Vasudevan, MD of Equitas SFB. 

With the SFB business still at a nascent stage, the worry for both Equitas and Ujjivan, as well as others that answer to a similar profile, is whether they can get a reasonable valuation while listing their banking arms and sustain investor interest. 

For Equitas, the dependence on MFI loans has reduced to 26 per cent of its total loan book, from about 50 per cent three years ago. Ujjivan’s books are heavy on MFI loans, which account for 80 per cent of the total loans, compared to 87 per cent in FY16.

Not now, not ever

• Small finance banks (SFBs) concerned over valuation change on listing both the non-operative financial holding company (NOHFC) and the operating banking arms

• Worry is that value will be stripped of the listed NOFHC and will reside in a separate listed entity

• Ujjivan and Equitas are test cases, but other SFBs are also in the same boat

• Governor Shaktikanta Das refuses to budge from stance taken by Urjit Patel