SFBs ready with systems to make the transition

Small finance banks (SFBs) in India have put in place systems to become universal banks, but they are not in a hurry to do so because they are building scale and capacities for long-term growth, according to their chief executive officers (CEOs).

- JADEN MATHEW PAUL & ABHIJIT LELE

The systems include core banking, an information-technology backbone, and governance.

While the Reserve Bank of India (RBI) had set out in 2019 the transition path for SFBs to convert into universal banks, it issued the granular details this year.

The heads of SFBs said the gain from turning into universal banks would be a reduction in the cost of funds. At present, they pay 25-50 basis points higher than universal banks on deposits. Second, the capital adequacy ratio would come down from the present 15 per cent to 11.5 per cent. Third, priority-sector lending obligations will decline from 75 per cent to 40 per cent, and, finally, it will improve customer satisfaction and the morale of employees.

Participating in a panel discussion on "Small Finance Banks - Can they go big?" K Paul Thomas, managing director (MD) & chief executive officer, ESAF SFB, said: "We can do everything. We got the authorized dealer licence last year."

"The main thing is that the word 'small finance' will go away from conversion and SFBs will be treated equally with universal banks. So one major thing is that the public perception will be changed," Thomas added.