Shivalik Coop Bank gets in-principle nod from RBI for becoming an SFB

Reserve Bank of India on Monday granted in-principle approval to Uttar Pradesh-based Shivalik Mercantile Cooperative Bank Ltd to convert into a small finance bank, becoming the first urban cooperative bank to be granted such nod.

"The Reserve Bank of India (RBI) has today granted 'in-principle' approval to Shivalik Mercantile Co-operative Bank Limited (the applicant) for transition into a Small Finance Bank (SFB) under the 'Scheme on voluntary transition of Urban Co-operative Bank (UCB) into a Small Finance Bank' (the Scheme) issued on September 27, 2018," an RBI notification said.

The UCB will get 18 months to comply with the requirements under the scheme which states that banks with a minimum net worth of Rs 50 crore and Capital to Risk (Weighted) assets ratio of 9 per cent and above are eligible to apply for voluntary transition to SFB.

These UCBs will also have to comply with the latest guidelines for on-tap licensing of SFBs in the private sector under which SFBs will have to maintain a minimum net worth of Rs 100 crore from the date of commencement of business.

SFBs are also required to maintain a minimum capital adequacy ratio of 15 per cent of their risk weighted assets on a continuous basis and increase minimum paid up voting equity capital to Rs 200 crore within five years from the date of commencement of business.

Upon meeting these criteria, RBI will consider granting it a licence for commencement of banking business.

In September 2018, RBI had come out with the scheme for voluntary transition of primary UCB into SFBs. Under the scheme, the promoters are required to be Indian residents with 10 years of experience in banking and finance. Promoter or promoter groups should conform to the definition of Sebi (Issue of Capital & Disclosure Requirements) Regulations, 2009, and RBI guidelines on 'fit and proper'.

Cooperative banks have been wary of converting into SFBs as it would mean losing the status of universal bank. SFBs are required to extend 75 per cent of their loans to sectors eligible for classification as priority sector lending (PSL), comprising loans to agriculture, micro, small and medium enterprises, education, housing, and others. Additionally, 50 per cent of SFB loan portfolio should constitute of loans and advances up to Rs 25 lakh.