Small bank hopefuls want norms eased

Small finance bank hopefuls asked N S Vishwanathan, RBI deputy governor, to relax priority lending norms

Entities with in-principle approval from the Reserve Bank of India (RBI) for small finance banks (SFBs) have sought relaxation of priority sector lending (PSL) norms.

In a meeting with RBI deputy governor N S Vishwanathan, the entities made recommendations with regard to the rules laid down by RBI for SFBs.

“At the moment, a bank lending to non-banking financial companies (NBFCs) and microfinance institutions (MFIs) is counted as PSL. And in turn the lending done by us when we become a bank can’t be counted as PSL as it will amount to double counting. So we have sought some guidance from RBI to see how we can work around this,” said a person who was present at the meeting on Monday.

According to the guidelines, SFBs need to maintain 75 per cent of adjusted net bank credit as their PSL target.

Another person from an MFI that has received in-principle approval for an SFB said the players also asked if loans under Rs 10 lakh with collateral could be counted under PSL.

These MFIs, which are in the process of converting themselves into SFBs, have also asked for some clarification on what may count as branches. “Some MFIs have said they should be given three years to convert all their current branches into bank branches. Some players also want some more relaxation on what may exactly qualify as a bank branch for them,” said another official who was part of the meeting with Vishwanathan.

These SFBs will be similar to existing commercial lenders and will undertake basic banking activities, such as accepting deposits and lending to the un-served and under-served. Their loan size and investment exposure to single and group obligators cannot be more than 10 per cent and 15 per cent of their capital, respectively. Also, at least 50 per cent of their loan portfolio has to include loans of up to Rs 25 lakh each.

The regulator has said these small banks can convert themselves into universal banks in due course of time. However, the transition will depend on RBI’s approval.

“They have been given in-principle approval subject to their meeting certain conditions to become small finance banks. We reviewed what they are doing as part of the journey to meet those requirements and what would be the regulatory framework,” said Vishwanathan after meeting these players on Monday.

Last year, RBI had granted in-principle licence to 10 of 72 applicants.  Of them, Capital Local Area Bank has already begun operations whereas two other players — Equitas and ESAF — have applied for the final licence to RBI.