North East Small Finance Bank Limited has commenced operations as a small finance bank with effect from October 17, 2017. The Reserve Bank has issued a licence to the bank under Section 22 (1) of the Banking Regulation Act, 1949 to carry on the business of small finance bank in India.

RGVN (North East) Microfinance Limited, Guwahati was one of the ten applicants which were issued in-principle approval for setting up a small finance bank, as announced in the press release on September 16, 2015.

The Reserve Bank of India (RBI) has today decided to grant “in-principle” approval to the following 10 applicants to set up small finance banks under the “Guidelines for Licensing of Small Finance Banks in the private sector” (Guidelines) issued on November 27, 2014.

Names of selected applicants

  1. Au Financiers (India) Ltd., Jaipur
  2. Capital Local Area Bank Ltd., Jalandhar
  3. Disha Microfin Private Ltd., Ahmedabad
  4. Equitas Holdings P Limited, Chennai
  5. ESAF Microfinance and Investments Private Ltd., Chennai
  6. Janalakshmi Financial Services Private Limited, Bengaluru
  7. RGVN (North East) Microfinance Limited, Guwahati
  8. Suryoday Micro Finance Private Ltd., Navi Mumbai
  9. Ujjivan Financial Services Private Ltd., Bengaluru
  10. Utkarsh Micro Finance Private Ltd., Varanasi

The “in-principle” approval granted will be valid for 18 months to enable the applicants to comply with the requirements under the Guidelines and fulfil other conditions as may be stipulated by the RBI. On being satisfied that the applicants have complied with the requisite conditions laid down by it as part of “in-principle” approval, the RBI would consider granting them a licence for commencement of banking business under Section 22(1) of the Banking Regulation Act, 1949. Until a regular licence is issued, the applicants cannot undertake any banking business.

Selection process

The RBI has selected these applicants after three different committees contributing to the final decision, backed by detailed case study for each applicant. The selection process involved the following steps:

A preliminary scrutiny of all the applications involving prima facie eligibility including the ability to raise the minimum initial capital and the status of ownership and control by residents as per the Guidelines was carried out by the RBI team. The findings of the preliminary scrutiny were presented to an External Advisory Committee (EAC) constituted under the Chairmanship of Smt. Usha Thorat, former Deputy Governor of the RBI. The EAC recommended applications to be taken up for detailed examination based on prima facie eligibility vis-à-vis the Guidelines.

The detailed scrutiny involved assessment of financial soundness, proposed business plan, fit and proper status based on due diligence reports received from the regulators, investigative agencies, banks, etc. An important factor was proposed reach into unbanked areas and underserved sections of the population. The EAC held detailed discussions in multiple sittings on the applications based on the information presented to it. The EAC then submitted its recommendations to the RBI.

An Internal Screening Committee (ISC), consisting of the Governor and the four Deputy Governors of the RBI thereafter examined the applications.  The ISC also deliberated on the rationale of the recommendations made by the EAC. After scrutinising all the applications, the ISC made its independent recommendations to the Committee of the Central Board (CCB) of the RBI. In the meeting of the CCB held on September 16, 2015, the external members of the CCB went through the notes, recommendations of EAC and ISC and decided the list of applicants for granting in-principle approval. The Chairman of the EAC was also invited to explain the rationale for the Committee’s recommendations.

Going forward, the Reserve Bank intends to use the learning from this licensing round to appropriately revise the Guidelines and move to giving licences more regularly, that is, virtually “on tap”.