RBI grants “In-principle” Approval to 10 Small Finance Banks

Committee on Financial Sector Reforms (Chairman: Dr. Raghuram G. Rajan), 2009 had examined the relevance of small banks in the Indian context. The Committee had opined that there was sufficient change in the environment to warrant experimentation with licensing of small banks. It recommended allowing more entry to private well-governed deposit-taking small finance banks (SFBs) offsetting their higher risk from being geographically focussed by requiring higher capital, a strict prohibition on related party transactions, and lower allowable concentration norms.

Final guidelines for licensing of small finance banks were issued on November 27, 2014. The Reserve Bank received 72 applications for small finance banks. The Reserve Bank of India (RBI) on 16th September 2015 decided to grant “in-principle” approval to the following 10 applicants to set up small finance banks.

Au Financiers (India) Ltd., Jaipur
Capital Local Area Bank Ltd., Jalandhar
Disha Microfin Private Ltd., Ahmedabad
Equitas Holdings P Limited, Chennai
ESAF Microfinance and Investments Private Ltd., Chennai
Janalakshmi Financial Services Private Limited, Bengaluru
RGVN (North East) Microfinance Limited, Guwahati
Suryoday Micro Finance Private Ltd., Navi Mumbai
Ujjivan Financial Services Private Ltd., Bengaluru
Utkarsh Micro Finance Private Ltd., Varanasi

The “in-principle” approval granted will be valid for 18 months to enable the applicants to comply with the requirements under the Guidelines and fulfil other conditions as may be stipulated by the RBI. On being satisfied that the applicants have complied with the requisite conditions laid down by it as part of “in-principle” approval, the RBI would consider granting them a licence for commencement of banking business under Section 22(1) of the Banking Regulation Act, 1949.

Until a regular licence is issued, the applicants cannot undertake any banking business.

The RBI has selected these applicants after three different committees contributing to the final decision, backed by detailed case study for each applicant. The selection process involved the following steps:

A preliminary scrutiny of all the applications involving prima facie eligibility including the ability to raise the minimum initial capital and the status of ownership and control by residents as per the Guidelines was carried out by the RBI team.

The detailed scrutiny involved assessment of financial soundness, proposed business plan, fit and proper status based on due diligence reports received from the regulators, investigative agencies, banks, etc. An important factor was proposed reach into unbanked areas and underserved sections of the population.

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