The Reserve Bank of India is ready to open the door for the small finance banks to become big universal banks.

What are the eligibility criteria for an SFB to become a universal bank?

# Scheduled status with a satisfactory track record of performance for a minimum

period of five years

All SFBs enjoy the scheduled status

# Shares of the bank should have been listed on a recognised stock exchange

All SFBs are listed on bourses

# A minimum net worth of ₹1,000 crore

Many meet this criterion

# 15% capital adequacy ratio

All SFBs meet this criterion

# Must post net profits in the last two financial years

Not all of them meet this condition

# Maximum 3% gross NPAs and 1% net NPAs in last two financial years

Not all of them meet this condition

@ There is no mandatory requirement for an eligible SFB to have an identified promoter. However, the existing promoters of the eligible SFB, if any, shall continue as the promoters on transition to Universal Bank

@ Addition of new promoters or change in promoters shall not be permitted for an eligible SFB while transitioning to Universal Bank

@ There shall be no new mandatory lock-in requirement of minimum shareholding for existing promoters in the transitioned Universal Bank

@ There shall be no change to the promoter shareholding dilution plan already approved by the Reserve Bank

@ The eligible SFBs having diversified loan portfolio will be preferred

A few of them have diversified portfolios while microfinance dominates the portfolios of many

Finally, the eligible SFB shall be required to furnish a detailed rationale for such transition

This is the softest requirement. The rationale of the transition is clear: Most SFBs are running two banks within one — an SFB for assets and a universal bank for liabilities. While they are giving loans to people who are not served by the universal banks, for deposits they are competing with the universal banks in metro markets.

Let’s wait and watch …