The Reserve Bank of India (RBI) will continue to exclude large industrial houses or non-banking finance companies (NBFCs) promoted by them from setting up small finance banks (SFBs), even as it has stipulated that the promoters should bring down their stake to 15 per cent within 15 years from the date of the commencement of business of these niche banks.

A minimum equity capital of Rs 200 crore will be required to set up a small finance bank.

Existing NBFCs, micro finance institutions and local area banks in the private sector, which are controlled by residents, can also opt for conversion into small finance banks.

These points formed part of the draft norms that were released by the central bank on Friday for “on tap” licensing of small finance banks.

The main objective of such banks is to bring about financial inclusion by catering to the unserved and under-served sections of the population. They have to supply credit to small business units, small and marginal farmers, micro and small industries and other unorganised sector entities. These banks will have to lend 75 per cent of total loans to the priority sector.

While the banks can accept deposits, they can also distribute mutual fund units and insurance and pension products with the RBI’s prior approval.

The draft guidelines said after three years from the date of the commencement of the bank, the RBI’s prior approval will no longer be required and the small finance banks will be governed by the same norms as applicable to scheduled commercial banks.

The RBI had issued the guidelines for the licensing of small finance banks in the private sector on November 2014 and subsequently licences were issued to 10 such entities.

The current norms do not differ much from those released in 2014 as they maintained that joint ventures by different promoter groups for the purpose of setting up these niche banks would not be permitted.

Further, proposals from public sector entities and large industrial house or state financial corporations will not be considered.

The RBI here clarified that a group with assets of Rs 5,000 crore or more whose non-financial business accounted for 40 per cent or more in terms of total assets or gross income will be treated as a large industrial house.

The norms said promoters will have to hold a minimum of 40 per cent of the paid-up voting equity capital of the bank for a period of five years from the date of the commencement of the business of the bank.

If the initial shareholding of the promoters in the bank is in excess of 40 per cent, it should be brought down to 40 per cent within a period of five years.

The draft added that the promoters’ stake should be brought down to a maximum of 30 per cent within a period of 10 years, and to a maximum of 15 per cent within 15 years.

The RBI added that proposals having diversified shareholding, subject to the initial minimum shareholding of promoters, and a time frame for the listing of the bank will be preferred.

However, after a small finance bank reaches a net worth of Rs 500 crore, listing will be mandatory within three years.

Also, small finance banks having a net worth of below Rs 500 crore can also get their shares listed voluntarily.

The foreign shareholding in the small finance bank would be according to the extant foreign direct investment policy for private banks.