SFBs and the Road to Universal banking: Challenges, Considerations, and Future Outlook
The Reserve Bank of India's (RBI) recent guidelines for small finance banks (SFBs) to convert into universal banks have brought clarity to the process, but the path to universal banking remains challenging for these institutions. While the new rules offer a roadmap, it is unlikely that any SFB will apply for a license in the immediate future.
Current Scenario:
Eligibility: Only AU Small Finance Bank currently meets all the criteria for conversion. However, its ongoing merger with Fincare SFB will take 9-12 months to complete.
Other SFBs: The remaining SFBs face hurdles in meeting the RBI's asset-quality criteria and will need at least a year or two to qualify.
Diversification: Diversifying loan portfolios remains a major challenge, particularly for SFBs with high exposure to mi...