According to the Reserve Bank of India, what is one of the eligibility criteria for a Small Finance Bank (SFB) to transition into a Universal Bank ?

Question

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Correct — C, Minimum net worth of ₹ 1,000 crore. The Reserve Bank's circular of 26 April 2024, 'Voluntary transition of Small Finance Banks to Universal Banks' (RBI/2024-25/28, DOR.LIC.REC.20/16.13.218/2024-25), issued under Section 22(1) of the Banking Regulation Act, 1949, sets out the eligibility criteria in its paragraph 5, and one of them reads in the Bank's own words: 'having a minimum net worth of ₹1,000 crore as at the end of the previous quarter (audited)'. That is a primary source and it leaves no room for the other three figures. The circular lists six conditions in all, and they are worth knowing together because the same list generates every question of this type: scheduled status with a satisfactory track record for a minimum of five years; shares already listed on a recognised stock exchange; the ₹1,000 crore audited net worth; compliance with the prescribed capital-to-risk-weighted-assets requirements for small finance banks; net profit in each of the last two financial years; and gross and net non-performing assets of not more than 3 per cent and 1 per cent respectively over the last two financial years. The circular also says that eligible small finance banks with a diversified loan portfolio will be preferred, that no identified promoter is mandatory but existing promoters must continue and no new ones may be added, and that the application goes to the Department of Regulation in Form III under Rule 11 of the Banking Regulation (Companies) Rules, 1949. Note the exact term used: net worth, not paid-up capital. Net worth is paid-up capital plus reserves and surplus, so a bank can clear ₹1,000 crore of net worth without ever having issued that much share capital.

Why the other options are wrong — (a) Half of what the circular requires. It is the most tempting wrong figure because ₹500 crore is a round number familiar from other bank-licensing thresholds, and a candidate who remembers 'several hundred crore' rather than the exact sum will drift down to it.  (b) Not a figure that appears anywhere in the April 2024 circular. It sits just above the real threshold, which is precisely how a distractor is built for a question whose answer is a specific rupee amount — near enough to look plausible, wrong enough to cost the mark.  (d) Twice the prescribed threshold. Setting the bar this high would put transition out of reach of most small finance banks, which defeats the purpose of a circular whose stated object was to bring clarity to a transition path the Reserve Bank had already promised in 2019.

Concept: India runs a two-tier bank licensing system. Universal banks are full-service commercial banks licensed under the 'on tap' guidelines of 2016, free to lend and take deposits without segment restrictions. Alongside them the Reserve Bank created differentiated banks in 2014-15 — small finance banks, meant to serve small business units, small and marginal farmers, micro and small industries and unorganised-sector entities, and payments banks, which may accept limited deposits but cannot lend at all. Small finance banks operate under obligations universal banks do not carry, including a high priority-sector lending requirement and a floor on small-ticket loans, and in exchange the framework has always contained a promised exit: paragraph 14 of the 'on-tap' licensing guidelines for small finance banks dated 5 December 2019 provides a transition path to universal bank status, conditional on meeting the capital requirement, on five years of satisfactory performance and on the Reserve Bank's own due diligence. The 26 April 2024 circular is what turned that promise into a checklist, and it is why the transition became an examinable current-affairs item that year.

State PCS 2024 Q141 — Economy PYQ with Answer

State PCS 2024 Q141 — Economy PYQ with Answer