Urban Cooperative Bank promoter will have to set up a Public Ltd Co before starting small finance banks

Urban cooperative Banks (UCBs) who are interested in converting into small finance banks (SFB) will have to first promote a public limited company and then transfer its assets and liabilities into that new entity said RBI in its final guidelines for voluntary conversion of Urban Co-operative Banks into Small Finance Banks.

According to the guidelines issued by the Reserve Bank of India on Friday following its intention of allowing UCBs to convert into SFB in its June policy statement, eligible UCB shall identify promoters for making an application to RBI for transition. After due diligence exercise, RBI will issue an in-principle approval for transitioning of the UCB into SFB for which the regulator will allow a maximum period of 18 months to start a business as Small Finance Bank.

RBI has said that the promoters will have to incorporate a public limited company under the Companies Act, 2013 having the word ‘bank’ in its name after receiving the in-principle approval from RB and its board should meet RBI’s ‘fit and proper’ criteria. “The incorporated company should enter into an agreement with UCB for transfer of assets and liabilities, to be executed at a future date (after issuance of SFB licence)” RBI said. The promoters can then seek a licence with evidence of equity funds.

The SFB has to start operations with a minimum net worth of Rs.1 billion and minimum promoters’ contribution of 26% of the paid-up equity capital. The licence application will be processed in accordance with the guidelines dated November 27, 2014 for licensing of SFBs in the private sector, subject to, what is stated in this Scheme.

RBI will issue SFB licence after the execution of sale agreement to transfer the assets and liabilities of the UCB to the new company. The licence will be effective only after transfer of assets and liabilities of the UCB to the SFB and meeting the minimum net worth requirement