Small Finance Banks aiming to become Universal Banks

Context (IE): The RBI stated that small finance banks (SFBs) must have a minimum net worth of Rs 1,000 crore to become universal banks under on-tap licensing norms.

Other criteria for SFBs to become a universal bank

Must have scheduled status and a five-year satisfactory performance track record.
Their shares must be listed on a recognised stock exchange.
They should have posted a net profit in the last two financial years.
They should have gross non-performing assets (GNPA) ≤3% and net non-performing assets (NNPA) ≤1%, respectively, in the last two financial years.
There’s no mandatory requirement for an eligible SFB to have an identified promoter, but existing promoters must continue.
Any dilution plan for promoter shareholding already approved by the RBI should not change.
SFBs with diversified loan portfolios are preferred by the RBI.

Small Finance Banks

SFBs are a category of scheduled commercial banks that primarily cater to the financial needs of small business units, micro and small industries, and unorganised sector entities.
SFBs are regulated by the RBI under the RBI Act of 1934 and the Banking Regulation Act of 1949.
An SFB is established as a private limited company under the Companies Act of 2013.
Small Finance Banks offer basic banking services such as Savings Accounts, Current Accounts, Fixed Deposits, Recurring Deposits, Loans, etc. (Payment banks & NBFCs cannot Lend).
SFBs are subject to all prudential norms and regulations of RBI applicable to existing commercial banks, including maintenance of Cash Reserve Ratio (CRR) and Statutory Liquidity Ratio (SLR).
The minimum paid-up equity capital requirement is INR 200 crores, except for SFBs converted from Urban Cooperative Banks, which require only INR 100 crore.
SFBs can be promoted by individuals, corporates, trusts, or societies.
SFBs are required to extend 75% of the credit to sectors eligible for classification as priority sector lending by the RBI (Commercial bank 40%).
At least 25% of the branches of any small finance bank should be located in rural areas where banking services are absent or not prevalent.
50 % of loans extended by them are to be less than INR 25 lakhs.
SFBs can undertake non-risk-sharing financial services such as the distribution of mutual fund units, insurance products, pension products, etc.
SFBs can set up dealerships in the foreign exchange business.
Existing NBFCs, microfinance institutions, and local area banks can opt for conversion into Small Finance Banks.