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RBI Eligibility Criteria for Small Finance Banks' Category-I License

Introduction

The Reserve Bank of India (RBI) has issued a communication regarding the eligibility criteria for Small Finance Banks (SFBs) to apply for an Authorised Dealer Category-I license.

Eligibility for Authorised Dealer Category-I License

As outlined in the earlier guidelines, SFBs now have the opportunity to progress from Authorised Dealer Category-II to Category-I status, following a minimum operational period. The eligibility criteria for SFBs seeking this upgrade are as follows:

  1. Operational Requirement: The bank must have completed at least two years of functioning as an Authorised Dealer Category-II.
  2. Regulatory Inclusion: The bank should be listed in the Second Schedule of the Reserve Bank of India Act, 1934.
  3. Net Worth: A minimum net worth of ₹500 crore is required.
  4. Capital Adequacy Ratio: The Capital to Risk-Weighted Assets Ratio (CRAR) must not fall below 15%.
  5. Net Non-Performing Assets: The net NPAs should not exceed 6% over the previous four quarters.
  6. Profitability: The bank must demonstrate profitability in the last two consecutive financial years.
  7. Regulatory Compliance: There should be no defaults in maintaining Cash Reserve Ratio (CRR) or Statutory Liquidity Ratio (SLR) during the prior two years.
  8. Internal Controls: The bank must have robust internal control mechanisms in place.
  9. Regulatory Standing: Absence of significant regulatory or supervisory issues is mandatory.

Application Process

Interested SFBs meeting the above criteria can apply for the Authorised Dealer Category-I license. Applications must be submitted to the Foreign Exchange Department, Central Office, Reserve Bank of India, accompanied by necessary supporting documents as indicated in Annex-II.

Required Documentation

To facilitate the application process, the following documents must be submitted:

  1. A copy of the banking license issued by the Department of Regulation, Reserve Bank of India.
  2. A Board resolution authorizing the conduct of activities permitted to an Authorised Dealer Category-I and the necessary authorization under Section 10(1) of the Foreign Exchange Management Act (FEMA), 1999.

Conclusion

The RBI remains committed to strengthening the operational framework for Small Finance Banks. By allowing SFBs the opportunity to transition to Authorised Dealer Category-I status, the intention is to enhance their ability to cater to clients' foreign exchange needs while ensuring compliance with established eligibility norms.