Shivalik Mercantile receives approval to become Small Finance Bank

Within a fortnight of the Reserve Bank of India (RBI) coming up with its draft guidelines on urban cooperative bank (UCB) asking them to lent 75 per cent of their portfolio towards priority sector, Uttar Pradesh based multi-state Shivalik Mercantile Co-operative Bank Ltd received an in principle approval for becoming a small finance banks.

The RBI had come with a scheme on voluntary transition of UCBs into Small Finance Bank (SFB) on September 27, 2018. But there was no taker. 

However, after the Punjab and Maharashtra Cooperative (PMC) Bank scam, the central bank tightened the screw and recently proposed that UCBs should severely restrict their business model and should bring down single and group exposure norms. Half of their portfolio should be comprised of loans of not over ~25 lakh. 

Last week, the RBI said the management should be run by professionals and the appointment of CEOs should be subject to RBI approval. 

On Monday, the RBI said in a notification on its website that Shivalik Mercantile has got an in-principle approval for such conversion. The bank will have 18 months to convert itself to a SFB. “If you see the guidelines for SFBs, and the draft guidelines for UCBs, they are very similar,” said a banking analyst request anonymity.

The message is clear that if UCBs don’t volunteer, they will have to be content with operating as SFBs anyway. This is RBI forcing the UCBs to convert after realizing they won't volunteer SFBs are like any other commercial banks, and can undertake all basic banking activities including lending and taking deposits. But their loan sizes are restricted to Rs 25 lakh, which is what the UCBs will have to do too, at least for half of their portfolio.

Now, Shivalik will have to fulfill all criteria as laid down by the RBI for on-tap licensing of SFBs. 

"On being satisfied that the applicant has complied with the requisite conditions laid down by it as part of "in-principle" approval, the RBI would consider granting it a licence for commencement of banking business … as a SFB," the central bank said in a statement.

Shivalik Bank has presence in Uttar Pradesh, Delhi, Madhya Pradesh and Uttrakhand. In fiscal 2018-19, the total deposit base was Rs 1051.20 crore, and total advances were Rs 715.24 crore, the bank's annual report showed.