RBI issues Guidelines Voluntary Transition of Primary (Urban) Co-operative Banks (UCBs) into Small Finance Banks (SFBs)

Oct 01, 2018 | by Avantis RegTech Legal Research Team

Reserve Bank of India vide notification dated September 27,2018 has issued guidelines on Voluntary Transition of Primary (Urban) Co-operative Banks (UCBs) into Small Finance Banks (SFBs)

Salient Features of this guidelines are following

1.       Base financial benchmarks for eligibility

UCBs with a minimum net worth of Rs.500 million and maintaining Capital to Risk (Weighted) Assets Ratio of 9% and above are eligible to apply for voluntary transition to SFB under this scheme.

2.       Promoters

A group of individuals/professionals, having an association with UCB as regular members for a period of not less than three years and approved by General Body with 2/3rd majority of members present and voting shall be treated as promoters for the incorporation of the new public limited company. The promoters must be residents and shall have ten years of experience in banking and finance. Promoter / Promoter Groups shall conform to the definition of the SEBI (Issue of Capital & Disclosure Requirements) Regulations, 2009 and RBI guidelines on ‘fit and proper’. RBI would assess the ‘fit and proper’ status of the applicants on the basis of their past record of sound credentials and integrity; financial soundness and successful track record of professional experience or of running their businesses.

3.       Capital requirement

The minimum net worth of the proposed SFB shall be Rs.1 billion from the date of commencement of business. As small finance banks are required to maintain a minimum capital adequacy ratio of 15 per cent of its risk weighted assets (RWA) on a continuous basis, availability of adequate capital shall be ensured. Promoters shall maintain at least 26% of the paid-up equity capital.


Procedure for application and required documents/ information

1. The scheme shall be ‘on-tap’, and the applications could be submitted to the Reserve Bank at any point of time after the date of notification on the website. In terms of Rule 11 of the Banking Regulation (Companies) Rules, 1949, promoters shall submit application in the prescribed form (Form III) along with the following documents and information:

 (i) The general body resolution by 2/3rd majority of members present and voting to transit into a Small Finance Bank as per the scheme and authorizing the Board of Directors for taking all steps for facilitating smooth transition process.

 (ii) The general body resolution by 2/3rd majority of members present and voting to identify and approve the promoters.

(iii) An undertaking from the promoters to ensure strict adherence with the provisions of Reserve Bank of India Act, 1934, Banking Regulation Act, 1949, Multi State Co-operative Societies Act, 2002/ respective State Co-operative Societies Act, Companies Act, 2013 and any other provisions / instructions issued by the RBI, in connection to the scheme, from time to time.

(iv) A letter from Central Registrar/RCS to the effect that they have no objection in the UCB voluntarily transiting into SFB under the RBI’s scheme by way of transfer of assets and liabilities to the banking company incorporated by promoters with the approval of RBI.

v) A detailed plan on providing uninterrupted banking to existing customers during the period of transition.


2. Along with the application, the promoters shall submit documents for establishing compliance with the requirements and ensure that the UCB continues to comply with the above parameters till the application is finally disposed of.


 3. The promoters shall furnish their business plans and project reports along with their applications. The business plan will have to address how the SFB proposes to achieve the objectives behind setting up of small finance banks. The business plan submitted by the applicant should be realistic and viable. In case of deviation from the stated business plan after issue of licence, RBI may consider restricting the SFB’s expansion, effecting change in management and imposing other penal measures as may be necessary.


Information of UCB transiting into the Small Finance Bank

(i) Shareholding pattern, bye-laws and financial statements of the past five years (including a tabulation of important financial indicators for the said years), and income tax returns for last three years.

(ii) The applicants should furnish detailed information about the persons who would subscribe to 5 per cent or more of the paid-up equity capital (shareholding pattern) of the proposed bank and the sources of capital of the proposed investors.

 (iii) The proposed promoter shareholding in compliance with the guidelines


Project  Report

A project report covering business potential and viability of the proposed SFB, the proposed area of operation, the business plan, any other financial services proposed to be offered, plan for compliance with prudential norms on CRR/SLR, composition of loan portfolio, priority sector, etc. as per the SFB guidelines, and any other information that is considered relevant. It should include detailed calculation of capital requirement after transfer of assets and liabilities of the UCB in order to maintain minimum CRAR of 15% from the date of commencement of business. The project report should give as much concrete details as feasible, based on adequate ground level information and avoid unrealistic or unduly ambitious projections. The business plan should address how the bank proposes to achieve financial inclusion and how the existing business of the UCB will fold into the small finance bank or divested / disposed of.




URL- https://rbidocs.rbi.org.in/rdocs/notification/PDFs/NT52910C6F5FB74E47BAB7819737A3C33C2B.PDF


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