On 6 January the Reserve Bank of India gave its ‘in principle’ approval for the Shivalik Mercantile Cooperative Bank to convert into a Small Finance Bank (SFB). The transition is allowed under the “Scheme on voluntary transition of Urban Co-operative Bank into a Small Finance Bank” issued in September 2018.
The decision sets a precedent – it is the first time a licence is issued by the RBI to an urban co-operative bank (UCB) to become a small finance bank. Saharanpur-based Shivalik Mercantile Cooperative Bank has 18 months to comply with all the criteria required to obtain the small finance bank licence.
Small finance banks in India face lending restrictions, unlike urban co-operative banks, which operate as universal banks and can undertake all activities permitted to commercial banks. They are also required to extend 75% of their loans to priority sectors, such as agriculture, micro, small and medium enterprises, education or housing. These banks need to have 50% of their loan portfolio as small loans of up to Rs 2.5m (£27,000).
Shivalik Mercantile Cooperative Bank operates 31 branches across Uttar Pradesh, Madhya Pradesh and Uttarakhand. In March 2019 it had total deposits of Rs 10.051bn (£110m), while its loan book stood at Rs7.15bn (£7.6m).
In addition to in branch services, the bank runs an ATM network and offers internet and mobile banking as well as doorstep services through micro-ATM devices.
In a statement on the RBI’s approval, Shivalik Mercantile Cooperative Bank said it was well placed with respect to compliance to the operating guidelines for Small Finance Banks with a large proportion of its existing loan portfolio was already classified as priority sector.
“On being satisfied that the applicant has complied with the requisite conditions laid down by it as part of ‘in-principle’ approval, the RBI would consider granting it a licence for commencement of banking business under Section 22 (1) of the Banking Regulation Act, 1949 as a SFB,” read the RBI statement.
The bank’s chief executive, Suveer Kumar Gupta, said: “It is a privilege and an honour for Shivalik to be the first UCB in the country to receive in-principle approval from the RBI for transitioning into a Small Finance Bank. The significant efforts put in by the team at Shivalik over a period of time have led us to this momentous day and I’m excited by the motivation this provides us to move forward to furthering our growth ambitions.
“We will continue to service our goals of financial inclusion and supporting the growth of small businesses through a differentiated technology focus. We believe these are essential to the growth of our nation and technology adoption is allowing us to leap frog into previously under explored segments. The Bank and the Board of Directors extend their gratitude to the Reserve Bank of India for their guidance and support, our customers, our business partners and all our employees.”
Indian urban co-operative banks have been in the spotlight over a scandal involving one of the sector’s largest banks. The Maharashtra Co-operative Bank was taken over by RBI last year after concerns about the accuracy of its financial statements. More than 20 co-op banks are now under RBI’s administration.
RBI has recently also revised its Supervisory Action Framework (SAF) to initiate prompt corrective action (PCA) for urban co-operative banks (UCBs) facing financial stress.