Most SFBs would not clamour to become universal banks if RBI eases some curbs, says ex-Secy

NEW DELHI: Highlighting the importance of small finance banks (SFBs) in fostering financial inclusion, former Financial Services Secretary D K Mittal said most of them would not clamour to become universal banks if some restrictions are eased by the Reserve Bank.

To promote financial inclusion in the country, RBI, in 2014, issued the guidelines for licensing of small finance banks (SFBs) in the private sector. Following this, RBI granted licences to a dozen entities.

As per the RBI guidelines, SFBs are required to open at least 25 per cent of their branches in unbanked rural centres and are mandated to provide 75 per cent of loans to the priority sector compared to 40 per cent for the commercial banks.

Last month, the RBI invited applications from small finance banks meeting specified criteria, including a minimum net worth of Rs 1,000 crore, for becoming regular or universal banks.”While issuing guidelines for Small Finance Banks to become universal banks, it would be in the larger national interest of financial inclusion if RBI lifts some of the restrictions imposed on such SFBs including tag of SFBs,” he told PTI.

Talking about restrictions, he said, the RBI should consider allowing co-lending, pass through certificate (PTC) and securitisation, and setting up of subsidiaries.Idea should be to make them at par with commercial banks except for three basic principles of priority sector, below 25 lakh and Basel II for capital, he said, adding that these should work as universal banks with a differentiated focus on financial inclusion.

Highlighting the importance of small finance banks (SFBs) in fostering financial inclusion, former Financial Services Secretary D K Mittal said most of them would not clamour to become universal banks if some restrictions are eased by the Reserve Bank.

To promote financial inclusion in the country, RBI, in 2014, issued the guidelines for licensing of small finance banks (SFBs) in the private sector. Following this, RBI granted licences to a dozen entities.

As per the RBI guidelines, SFBs are required to open at least 25 per cent of their branches in unbanked rural centres and are mandated to provide 75 per cent of loans to the priority sector compared to 40 per cent for the commercial banks.

Last month, the RBI invited applications from small finance banks meeting specified criteria, including a minimum net worth of Rs 1,000 crore, for becoming regular or universal banks.”While issuing guidelines for Small Finance Banks to become universal banks, it would be in the larger national interest of financial inclusion if RBI lifts some of the restrictions imposed on such SFBs including tag of SFBs,” he told PTI.

Talking about restrictions, he said, the RBI should consider allowing co-lending, pass through certificate (PTC) and securitisation, and setting up of subsidiaries.Idea should be to make them at par with commercial banks except for three basic principles of priority sector, below 25 lakh and Basel II for capital, he said, adding that these should work as universal banks with a differentiated focus on financial inclusion.

Other conditions include a prescribed CRAR (capital-to-risk weighted assets ratio) requirement and a satisfactory track record of performance for a minimum period of five years.