The Reserve Bank of India (RBI) on Monday granted in-principle approval to Uttar Pradesh-based Shivalik Mercantile Co-operative Bank Ltd to convert to a small finance bank (SFB), becoming the first urban cooperative bank (UCB) to make the transition since the guidelines came out nearly two years ago.
“The Reserve Bank of India has today granted in-principle approval to Shivalik Mercantile Co-operative Bank Ltd (the applicant) for transition into a small finance bank under the scheme on voluntary transition of urban co-operative bank into a small finance bank issued on September 27, 2018," an RBI notification said.
The UCB will get 18 months to comply with the requirements under the scheme, which state that banks with a minimum net worth of ₹50 crore and capital to risk (weighted) assets ratio of 9% and above are eligible to apply for voluntary transition to SFB. These UCBs will also have to comply with the latest guidelines for on-tap licensing of SFBs in the private sector, under which SFBs will have to maintain a minimum net worth of ₹100 crore from the date of commencement of business.
The SFBs are also required to maintain minimum capital adequacy ratio of 15% of its risk weighted assets (RWA) on a continuous basis and increase the minimum paid-up voting equity capital to ₹200 crore within five years of the date of commencement of business.
In September 2018, RBI had come out with the scheme for voluntary transition of primary UCBs into small finance banks. Under the scheme, the promoters are required to be Indian residents, with 10 years of experience in banking and finance. Promoter or promoter groups should conform to the definition of the Sebi (Issue of Capital & Disclosure Requirements) Regulations, 2009 and RBI guidelines on fit and proper.
Co-operative banks have been wary of converting to SFBs as it would mean losing the status of a universal bank. SFBs are required to extend 75% of their loans to sectors eligible for classification as priority sector lending (PSL), comprising loans to agriculture, micro, small and medium enterprises, education, housing, and others. Additionally, 50% of the SFB loan portfolio should constitute loans and advances up to ₹25 lakh.
Shivalik MCB started as a district-level UCB on 5 September 1998 with a single branch in Saharanpur, Uttar Pradesh. Soon, the bank expanded its presence by opening branches across the state. In 2010, the bank acquired a loss-making small bank in Madhya Pradesh’s Dhar and converted it into a profit-making branch within a year, which helped the bank achieve multi-state bank status. Shivalik bank is the largest UCB in Uttar Pradesh, is associated with 8,000 self-help groups, and operates through 31 branches.