As a part of its broader plan to kick off differentiated banks in the country, the Reserve Bank of India (RBI) on Wednesday granted small finance bank licences to 10 entities, eight of which are microfinance institutions. Capital Local Area Bank and Au Financiers are the two other entities that have been granted a licence out of a total of 72 applicants.
The micro lenders that have been granted licences are Janalakshmi, Suryoday, Ujjivan, Utkarsh, Disha, ESAF Microfinance, RGVN (North East) and Equitas Holdings. The last entity is also involved in car loans and home loans, apart from micro lending.
They will have to start operations in 18 months, failing which the licences would be cancelled. Almost all the new licensees said they were well prepared to meet the deadline. “We have already done a lot of research. We will have to rehaul our entire structure and develop a unique model, as we cannot be like any other commercial bank. Also, right now, 90 per cent of our shareholding is foreign. We will have to bring it down to less than 50 per cent,” said Samir Ghosh, founder, Ujjivan Financial Services. According to RBI norms, promoter shareholding in small finance bank should be 40 per cent initially. In case it is more than that, it should be brought down to that level within five years. The lock-in period for promoter’s share (40 per cent) is five years from the date of commencement of business.
ALSO READ: Small ones seek big splash
Some of the players indicated that though they were well capitalised, they might go for fresh round of funding. The initial capital requirement of small finance banks is Rs 100 crore and they have to maintain a capital adequacy ratio of 15 per cent with 7.5 per cent of tier-I capital.
“I believe we are currently well capitalised but in the next two-three months we plan to raise Rs 40-50 crore. For this we have already tied up with our existing investors and promoters,” said R Baskar Babu, Chief Executive Officer of Suryoday, which is backed by investors like HDFC, HDFC Life, IFC, Alok Capital, Avishkaar Goodwell and Developing World Markets.
Corporate houses and non-banking finance companies that are backed by business houses were not eligible to apply.
Among notable applicants which failed to secure a licence is SKS Micro Finance and Dewan Housing Finance, an NBFC. Former SKS chief executive Vikram Akula, who started Vaya Finserv after his exit from SKS, also did not get a licence. In addition, many individuals including former bankers had applied but were not granted licence.
The applicants were screened by an external advisory committee headed by former deputy governor of RBI, Usha Thorat. In the second stage, an internal screening committee, consisting of the RBI Governor and the four deputy governors examined the applications. Going forward, RBI said, “it intends to use the learning from this licensing round and will revise the guidelines and move to giving licences more regularly, that is, virtually on tap”.
According to RBI norms, small finance banks will be allowed to undertake basic banking activities of acceptance of deposits and lending to unserved and underserved sections including small business units, small and marginal farmers, micro and small industries and unorganised sector entities. It is mandated that 75 per cent of the loans should be extended to sectors that are classified under priority sector. The maximum loan size and investment limit exposure to a single and group borrower cannot exceed 10 per cent and 15 per cent of its capital and at least 50 per cent of its loan portfolio should constitute loans and advances of up to Rs 25 lakh. Last month, the central bank granted payments bank licence to 11 entities.
THE 10 WINNERS
- Au Financiers (India), Jaipur
- Capital Local Area Bank, Jalandhar
- Disha Microfin, Ahmedabad
- Equitas Holdings, Chennai
- ESAF Microfinance and Investments, Chennai
- Janalakshmi Financial Services, Bengaluru
- RGVN (North East) Microfinance, Guwahati
- Suryoday Micro Finance, Navi Mumbai
- Ujjivan Financial Services, Bengaluru
- Utkarsh Micro Finance, Varanasi
Universal banking licence: Two players — IDFC and Bandhan (April 2, 2014)
Payments banks: 11 players – to help deepen financial inclusion (August 19, 2015)
- Small finance banks: 10 players — to undertake basic banking activity for under-banked areas (September 16, 2015)
FINE PRINT ON OPERATIONS
DOs & DON’Ts
Can undertake basic banking activities of acceptance of deposits and lending
Can lend only for financial inclusion, including small business units, small and marginal farmers, micro and small industries and unorganised sector entities
- Allowed to distribute mutual fund products, insurance products and pension products
Not allowed to set up subsidiaries to undertake non-banking financial activities
- Other financial and non-financial services activities of the promoters should not be mingled with the working of the bank