RBI Notification on Voluntary Conversion of Urban Co-operative Banks (UCBs) into Small Finance Banks (SFBs)

Sub.: Note on conversion of Urban Co-operative Banks (UCBs) into Small Finance Banks (SFBs)

A) INTRODUCTION:

As part of its push for greater financial inclusion, the Reserve Bank of India had, in 2015, granted ten small bank licenses. In the view of getting wider scope to the Urban Co – operative bank the RBI decided to allow voluntary transition of UCBs Urban Co- operative Banks (UCBs) after meeting the prescribed criteria into Small Finance Bank’s. (SFBs)

The Reserve Bank of India had recently 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 27 September, 2018, of RBI notification.

This transition is required due to the changing financial landscape in the country and also for giving an opportunity to well-run UCBs to play a major role going forward.

From the regulator’s standpoint, the conversion could provide UCBs better fund access. One distinct advantage for an UCB to convert into a small finance bank is that it will be able to tap the capital market to raise funds. The rationale for allowing the UCB a conversion is that better managed and larger UCBs will have better access to the capital market and the move will help them grow their balance sheets further.

B) ELIGIBILITY CRITERIA:

1. UCBs with a good track record shall be eligible to voluntarily transit into a SFB.
2. UCBs with a minimum net worth of Rs.500 million and maintaining Capital to Risk (Weighted) Assets Ratio of 9% and above are eligible to apply for voluntary transition to SFB under this scheme.
3. RBI will issue an in-principle approval for transitioning of the UCB into SFB, subject to compliance with the requirements mentioned in the scheme and will allow a maximum period of 18 months for commencement of business as SFB.
4. Promoters Shall Incorporate Public Limited Company having the Word “Bank” in the Name of Company.
5. The board of directors of the company shall have required experience and shall meet RBI’s fit and proper’ criteria.
6. SFB having 100 Crore Net Worth for commencing the operations as a SFB.
7. SFB having minimum promoters’ contribution of 26% of its paid-up equity capital.
8. SFB Comply any other criteria given by reserve bank of India time to time.

C) PROCEDURE FOR APPLICATION AND REQUIRED DOCUMENTS/ INFORMATION

The promoters shall submit application in the prescribed form (Form III) along with the following documents and information:

1. The General Body Resolution passed by 2/3rd majority of members present for voting of transit into a Small Finance Bank.
2. The general body resolution by 2/3rd majority of members present for voting to identify and approve the promoters.
3. An undertaking from the promoters to ensure strict adherence with the provisions of Reserve Bank of India Act, 1934, Banking Regulation Act, 1949, Multi State Co-operative Societies Act, 2002/ respective State Co-operative Societies Act, Companies Act, 2013 and any other provisions / instructions issued by the RBI, in connection to the scheme, from time to time.
4. Having a letter from Central Registrar/RCS to the effect that they have no objection in the UCB voluntarily transiting into SFB under the RBI’s scheme by way of transfer of assets and liabilities to the banking company incorporated by promoters with the approval of RBI.
5. A detailed plan on providing uninterrupted banking to existing customers during the period of transition.
6.  Along with the application, the promoters shall submit documents for establishing compliance with the requirements and ensure that the UCB continues to comply with the above parameters till the application is finally disposed of.
7. The promoters shall furnish their business plans and project reports along with their applications.
8. The business plan will have to address how the SFB proposes to achieve the objectives behind setting up of small finance banks.
9. The promoters should furnish documents and information like, KYC, Experience, Track Record, Background, and Interest in other companies and their holdings.
10. Project Report
11. RBI will issue SFB license followed by execution of the slump sale agreement to transfer the assets and liabilities of the UCB to the new company. The license will be effective only after transfer of assets and liabilities of the UCB to the SFB and meeting, inter alia, the minimum net worth requirement prescribed for SFBs.
12. Converting UCB furnish the following are details:

• Shareholding Pattern
• Buy Laws
• Financial Statements of Last 5 Years.
• Income Tax Returns of Last 3 Years.
• Applicant who would subscribe 5% or more of the Paid up equity (Shareholding Pattern) of Proposed Bank and the sources of capital of the proposed investors.
• Any other information required.

Thanking you and assuring the best of our services at all times.

PLACE OF RENDERING SERVICES:

The place of rendering services generally shall be our office situated at Off: 496B,Om Apt,2nd Floor, Near KCC Classes, Kasba Peth, Pune – 411 011.

CS IP Pramodkumar R. Ladda

Company Secretary and Insolvency Professional

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