Small finance bank hopefuls queue up for final approval

Last year, for the 1st time the central bank had granted in-principle approval to 10 entities for SFB

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Almost a year after the Reserve Bank of India (RBI) had granted in-principle approvals to 10 applicants for small finance banks (SFBs), these players are queuing up with their plans in place, seeking a final approval from the regulator.

Suryoday Micro Finance and ESAF Microfinance have already applied for the final licence. Three other players — RGVN (North East) Microfinance Ltd, Ujjivan Financial Services, and Utkarsh Micro Finance — are planning to apply in August as they said their preparations are in the last lap.

Last year, for the first time, the central bank had granted in-principle approval to these entities for SFBs out of the 72 players which had applied.

This in-principle approval is valid for 18 months and players are expected to commence operations before the expiry of this term.

Of the 10 players, Capital Local Area Bank has already started operations and Equitas Holdings has already received the final licence.

Unlike payments banks, where three of the 11 players that were granted in-principle approval have dropped out, the plans of SFB players seem to be on track. Experts believe this is because most of these players were already microfinance companies and, therefore, already involved in some banking operations, which ensured the transformation process was easier.

However, as these SFB players are finalising their plans, they believe they may see some pressure on profitability in the near term. However, they are placed better than the payments banks as they are allowed to lend and carry out all banking operations, although the focus has to primarily be on the unbanked population.

Recently, these SFBs have also sought some clarification and forbearance from the regulator with regard to branch opening and meeting priority sector lending norms to ensure that the pressure on the balance sheet in the initial period is minimalised.

The SFBs have been mandated to engage in basic banking activities such as accepting deposits and lending to the un-served and under-served. Their loan size and investment limit 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.