Capital needed for banking licence may be doubled if RBI accepts recommendations

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SME Times News Bureau | 21 Nov, 2020
To ensure that entities seeking private banks licence remained adequately capitalised to meet any eventuality, a Reserve Bank of India internal committee has recommended nearly doubling of the initial capital and net worth requirements to be eligible for getting a banking licence.

The P.K. Mohanty headed working committee had recommended that the minimum initial capital requirement to set up a new universal bank may be increased to Rs 1000 crore while that of small finance bank (SFB) may also be raised to Rs 300 crore.

Under the on-tap licence being given by the RBI for these categories, the current initial capital requirement for a universal bank is Rs 500 crore and that of SFB is Rs 200 crore.

The committee has also recommended raising the initial paid up voting equity share capital for unban cooperative banks (UCBs) transiting to SFBs from the present Rs 100 crore to Rs 150 crore, which it has said has to be increased to Rs 300 crore in five years.

"As the licensing guidelines are now on continuing basis (on-tap), the Reserve Bank may put a system to review the initial paid up voting equity share capital/net worth requirement for each category of banks, once in five years," the committee said in its report that was released by the RBI on Friday evening.

The committee has also recommended listing of SFBs within six years from the date of reaching net worth equivalent to prevalent entry capital requirement prescribed for universal banks' or 'ten years from the date of commencement of operations', whichever is earlier.

It has said that for existing small finance banks and payments banks, listing should be done 'within six years from the date of reaching net worth of Rs 500 crore' or 'ten years from the date of commencement of operations', whichever is earlier.

Universal banks will have to be listed within six years of commencement of operations as is the case now, the committee has said.