Cheer for NBFC stocks on new norms for small banks

Stocks of non-banking finance companies (NBFCs) on Friday closed up to 4 per cent higher as the RBI unveiled final guidelines for setting up small finance and payment banks.

NBFCs and SKS Microfinance, the lone listed NBFC-micro finance institution, are seen applying for licenses to start small finance banks as the central bank has allowed them to have all India operations. Among the NBFC stocks that saw healthy appreciation include Sundaram Finance (in per cent) 4.10, Shriram Transport Finance 3.96, , Muthoot Finance 3.57, Manappuram 3.52 and SREI Infrastructure Finance 2.81.

SKS Microfinance shares closed 2.38 per cent higher. Shares of IDFC, which got in-principle approval from the RBI in April to get converted into a bank from its existing status of NBFC, too soared 3.14 per cent.

According to RBI guidelines for starting a small finance, eligible promoters will include resident individuals/ professionals with requisite experience in banking and finance, and companies and societies. Existing NBFCs, micro finance institutions and local area banks can also opt for conversion into small banks.

No to larger ones

The RBI said proposals from large public sector entities and industrial and business houses, including NBFCs promoted by them, will not be entertained for small banks. These banks can be started with a minimum paid-up equity capital of ₹100 crore,

The small bank will primarily undertake basic banking activities of acceptance of deposits and lending to unserved and underserved sections including small business units, small and marginal farmers, micro and small industries and unorganised sector entities. The small bank will be required to extend 75 per cent of its credit to the sectors eligible for classification as priority sector lending. The RBI said it will receive applications for starting small finance and payment banks till January 16, 2015.