Small finance banks seek an urgent extension of time limit for listing

Small finance banks (SFBs) have sought an urgent extension of the time limit for their listing — after having met some financial conditions — to eight years from six currently.

These banks have cited the “accepted recommendations 31 and 27” of the Reserve Bank of India’s (RBI’s) Internal Working Group (IWG) to buttress their request.

On November 25 last year, the RBI had said it had accepted 21 recommendations of the 33 made by the IWG.

Jana SFB, Utkarsh SFB, Fincare SFB, and ESAF SFB, which have their initial capital floats in the pipeline, will gain if the central bank were to “circularise” the Recommendations 31 and 27, immediately. This is because the RBI has also said “… (during) the interregnum, all stakeholders may be guided by these decisions”. The point, SFB sources reiterate, is that in the absence of a circular, they do not have a clue as to how to react to this general observation.

The IWG’s Recommendation 31 (on the “Extant Guidelines on the Ownership and Corporate Structure for Private Banks”) said: “Whenever a new licensing guideline is issued, if the new rules are more relaxed, the benefits should be given to existing banks immediately.” And further that “(if) the new rules are tougher, legacy banks should also conform to new tighter regulations, but a transition path may be finalised in consultation with affected banks to ensure compliance with new norms in a non-disruptive manner.”

Recommendation 27 (“SFBs to be set up in future”) said: “Such banks should be listed ‘within six years from the date of reaching a net-worth equivalent to prevalent entry capital requirement prescribed for universal banks’, or ‘ten years from the date of commencement of operations’, whichever is earlier.”

The RBI, while accepting Recommendation 27, made a modification: “Such banks should be listed within ‘eight years from the date of commencement of operations’.” On the cap of eight years for mandatory listing for these banks, the RBI reasoned “this has been stipulated considering the importance of listing and to provide sufficient time to these banks for stabilisation, consolidation of operations and to gain investors’ confidence”.

SFBs’ discomfort stems from the fact that the existing lot had faced the brunt of the after-effects of demonetisation in 2016 and, later, the pandemic.