With ‘On-Tap' Licensing Of SFBs, Payments Banks May Go For It

Converting into a small finance bank will allow these players to scale up profitability

- Radhika Merwin

After granting licences to 10 players to set up small finance banks (SFBs) four years ago, the RBI has announced guidelines for on-tap licensing of SFBs to widen the competition.

Aside from the higher minimum capital and revision in timelines for bringing down promoter shareholding, the guidelines for on-tap licensing are similar to those laid down earlier.

Importantly, payments banks can apply for small finance bank licence. This implies that existing players in the payments banks space can convert themselves into a small finance bank. The question is: will they?

Given that payments banks have been constrained by limited revenue streams, small margins, and challenging business models, it is likely that many of them would consider applying for the SFB licence.

Morphing into an SFB will allow these players to lend and scale up profitability.

India Post Payments Bank has already stated that it is evaluating the SFB option. Rishi Gupta, MD and CEO, Fino Payments Bank, also says that it is looking at the guidelines to assess the SFB route.

How is it different?

The eligibility criteria, the scope of activities, prudential norms and listing requirements under the on-tap licensing are more or less similar to those laid down in 2014.

Hence, resident individuals/professionals with 10 years’ experience in banking and finance, and companies and societies owned and controlled by residents running the business for at least five years, are eligible as promoters to set up an SFB.