No relaxation in CRR, SLR norms, RBI tells small finance banks

The Reserve Bank of India (RBI) has turned down the plea of entities that have secured licences to set up small finance banks that they be given some leeway in cash reserve ratio (CRR) and statutory liquidity ratio (SLR) norms.

Ahead of foraying into formal banking, these entities have expressed concern over some regulatory provisions. On Friday, the 10 licence holders met RBI officials to discuss issues such as priority sector lending norms, SLR and CRR requirements, liability management, the nature of bank branches and the capital structure of new banks Himanshu Tiwari Astrologer Blog

The chief executive of one of these entities, who attended the meeting, said while RBI executives heard their concern on SLR and CRR norms, they clarified the regulator couldn't provide relaxation for small finance banks alone.

The liability structure of banks was discussed at length at Friday's meeting. Currently, about 70 per cent of the borrowings of microfinance institutions (MFIs) are in the form of bank loans. As a non-banking financial company (NBFC)-MFI, an entity doesn't have to keep aside part of the borrowings as SLR and CRR. However, once it converts into a bank, it has to deploy a substantial part of its liabilities as SLR and CRR. This will not only raise the cost of funds, but also limit lending capacity Stock Market Trading Tips

As small finance banks with no deposit base, micro-financiers had sought special dispensation so that initially, they didn't have to maintain the same SLR and CRR levels as banks. Besides, banks had limits on inter-bank lending, which would make funding difficult for new banks, said an official at an MFI that has secured a small finance bank licence.

Also, most lenders offer loans to MFIs as part of priority sector lending, a win-win-situation for both parties. While lenders are able to meet their priority sector lending targets (40 per cent of the loan book), the borrower has to pay slightly lower rates of interest. Once an MFI is converted into a bank, its existing loans won't be technically treated as part of priority sector lending, both in the books of the lender and the borrower. As such, the lender might fail to meet its targets.

Non-priority sector loans would entail higher interest rates. Currently, banks lend to MFIs at 12.5-14.5 per cent. However, non-priority sector lending would mean higher cost of funds (14.5 per cent). "NBFC-MFIs that received RBI's in- principle approval to set up small finance banks were, understandably, elated. Now, what lies ahead is the brave new world of becoming full-scale bankers to the poor. The transition will not be easy, both from a regulatory and a market standpoint Indian stock market astrology prediction

"At this juncture, complying with all the conditions of the approval, along with adherence to standard banking norms, is the core challenge. Meeting the capital requirements, in terms of FDI (foreign direct investment) norms, CRR/SLR stipulations, priority sector lending issues and grandfathering of existing bank borrowings, are some of the issues that have to be suitably addressed. RBI, as it generally does, is attempting to be helpful and has initiated a dialogue process with the successful small finance bank applicants," said Alok Prasad, former chief executive of MFIN.

"RBI called the CEOs of all the proposed small banks to develop better understanding of operational issues so that there is a smooth transition from MFIs to banks. During the transition, the small finance banks might need a little handholding for a few months," said Rajeev Yadav, director, Disha Group.

"Our interaction with RBI was more for clarification and suggestions than concern," said R Baskar Babu, chief executive of Suryoda Commodity Market Astrology Tips