New Delhi: A universal banking licence allows a financial institution to offer a full range of services from commercial to investment banking all under one roof. This makes banking more convenient and efficient for customers. Back in August 2016, the Reserve Bank of India (RBI) rolled out its ‘on tap’ licensing policy for universal banks in the private sector. This meant eligible players could apply for a banking licence anytime, instead of waiting for specific windows.
Eligibility Criteria for Universal Banking Licence
– Individuals/Professionals: Must be resident individuals with at least 10 years of senior-level experience in banking and finance.
– Entities/Groups: Private sector entities owned and controlled by residents with a proven track record of 10+ years can apply. Large industrial houses are not eligible, but they can hold up to a 10 per cent stake in such banks.
– NBFCs: Resident-controlled NBFCs with a successful track record of 10+ years may apply, subject to meeting RBI’s conditions.
Turning a small finance bank into a universal bank marks a major step towards growth and diversification in the banking sector. With this status, SFBs can go beyond their current offerings and provide a wider range of services, including large business loans, credit cards, mutual funds, and other investment products.
RBI Norms for Converting an SFB into a Universal Bank
– Minimum net worth of Rs 1,000 crore
– Must have scheduled bank status
– At least five years of satisfactory performance
– Gross NPA ratio ≤ 3% in the last two financial years
– Net NPA ratio ≤ 1% in the last two financial years
– Listed on recognised stock exchanges
AU Small Finance Bank will be in the spotlight when markets open on Friday after getting the Reserve Bank of India’s in-principle nod to upgrade from a small finance bank to a universal bank. The approval follows the bank’s September 3, 2024 request to the central bank for a universal banking licence.