Synopsis
While they have been in work for quite some time, yesterday, RBI released the guidelines for small finance banks to turn themselves into universal banks. While most of the guidelines are not something these banks cannot follow, but one where some of them would face issues but only for short term would be the NPA, as per guidelines, the gross NPA should be less than 3 % and Net NPA should be less than 1 % for the last two years. Now some of them are already meeting this criteria. So, they would like to become a universal bank and move into new areas. The winner would be one, who would be able to ensure that net interest margins are not hit that badly as they are bound when new business gets added. But surely this space would see some action sooner than later, in terms of some of them getting re-rated.
For the last many months, RBI has been in a mood to do a clean up of the whole financial service. It is probably that after RBI has done a round of check up in the small banks space that they have come out with guidelines for these small banks to turn into universal banks. What difference does it make in the life of small finance banks when it becomes at universal banks. The answer is simple, flexibility to move into many new segments of banking
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