On April 12, the Reserve Bank of India (RBI) announced that it had deemed two additional small finance bank (SFB) applications ineligible for a license. These applications were filed by Dvara Kshetriya Gramin Financial Services Pvt Ltd and Tally Solutions Pvt Ltd.
Thus far, the central bank has received 13 applications for small finance bank and universal banking licenses, out of which 11 have been declined. Here is a brief overview of the RBI’s actions regarding SFB applications to date.
Organization applied for banking licenses
The central bank has received 13 applications for small finance bank licenses and universal bank licenses. UAE Exchange and Financial Services Ltd, The Repatriates Cooperative Finance and Development Bank Limited (REPCO Bank), Chaitanya India Fin Credit Private Limited, Pankaj Vaish and others, and Annapurna Finance have applied for an ‘on tap’ banking license.
VSoft Technologies Private Ltd, Calicut City Service Co-operative Bank Ltd, Akhil Kumar Gupta, Dvara Kshetriya Gramin Financial Services Pvt Ltd, Cosmea Financial Holdings Private Ltd, Tally Solutions Private Ltd, West End Housing Finance Ltd, and Fino Payments Bank submitted applications for an ‘on tap’ small finance banking license.
RBI rejected applications
The central bank has rejected a total of six applications. In May 2022, these applications were deemed unsuitable for either a small finance bank license or a universal bank license. The organizations deemed unsuitable for a universal bank permit included UAE Exchange and Financial Services Limited, REPCO Bank, Chaitanya India Fin Credit Private Limited, and Pankaj Vaish and others. Meanwhile, VSoft Technologies Private Limited and Calicut City Service Co-operative Bank Limited were found unsuitable for an SFB permit.
Likewise, on July 4, 2023, the central bank determined that Akhil Kumar Gupta, Cosmea Financial Holdings Private Limited, and West End Housing Finance were not suitable for receiving a license. The most recent rejections came from Dvara Kshetriya Gramin Financial Services Pvt Ltd and Tally Solutions Pvt Ltd.
Under consideration for license
The organizations currently being considered for a license are Annapurna Finance Private Limited and Fino Payments Bank. As stated on April 12, the central bank announced that it would review these applications.
Current working of rejected entities
As of April 15, based on its website information, Dvara Kshetriya Gramin Financial Services Pvt Ltd operates in 10 states and provides services such as business and jewellery loans, along with insurance products.
Headquartered in Kolkata, Tally Solutions Pvt Ltd is primarily an information technology (IT) company specializing in technology and software solutions.
Guidelines on SFBs in 2014
The RBI initially introduced its guidelines for SFBs in 2014. These guidelines were designed to advance financial inclusion by offering savings options and providing credit to small business units, small and marginal farmers, micro and small industries, and other unorganized sector entities. This was achieved through the use of high-technology and low-cost operations.
Amendment in 2019 in SFBs guidelines
In 2019, significant modifications were introduced to the 2014 guidelines regarding Small Finance Banks. These changes included transitioning to an on-tap licensing system and establishing a minimum paid-up voting equity capital/net worth requirement of Rs 200 crore.
Additionally, for Urban Co-operative Banks (UCBs) wishing to voluntarily transition into Small Finance Banks (SFBs), the initial net worth requirement was established at Rs 100 crore. This requirement was to be raised to Rs 200 crore within five years from the start of business operations.
An Internal Screening Committee (ISC), comprising the RBI’s Governor and Deputy Governors, assesses all applications and subsequently presents its recommendations to the Central Board Committee of the RBI for a final decision regarding in-principle approval.
While meeting the eligibility criteria is important, the central bank retains the authority to decline an application. The most recent issuance of universal banking licenses occurred in 2015, granting banking permits to IDFC and Bandhan.
Conclusion
The Reserve Bank of India (RBI) has recently rejected applications for small finance bank (SFB) licenses from Dvara Kshetriya Gramin Financial Services Pvt Ltd and Tally Solutions Pvt Ltd, among others, citing their unsuitability. This decision reflects the stringent criteria and thorough evaluation process employed by the RBI in assessing banking license applications. The central bank’s emphasis on financial inclusion and technological advancement in the banking sector remains evident through its guidelines and amendments aimed at promoting access to financial services for underserved sectors.
