Reserve Bank of India (Small Finance Banks – Licensing) Guidelines, 2025 · RBI/DOR/2025-26/175

RBI/DOR/2025-26/175 November 28, 2025

Reserve Bank of India (Small Finance Banks – Licensing) Guidelines, 2025

Table of Contents

Chapter-I ‘On tap’ Licensing of Small Finance Banks in the Private Sector A. Preamble B. Definitions C. Guidelines C.1 Registration, licensing and regulations C.2 Objectives C.3. Eligible promoters C.4. Scope of activities C.5. Capital requirement C.6. Promoters’ contribution C.7. Foreign shareholding C.8. Voting rights and transfer / acquisition of shares C.9. Prudential norms C.10. Additional conditions for NBFCs/MFIs/LABs/PBs converting into a bank C.11. Business plan C.12. Corporate governance C.13. Other conditions C.14 Procedure for application C.15 Procedure for RBI decisions

Chapter-II Voluntary Transition of Urban Co-operative Banks into Small Finance Bank A. Introduction B. General modalities of the Scheme C. Base financial benchmarks for eligibility D. Procedure for application and required documents/ information

Annex I A. Additional Information to be furnished by promoters along with relevant supporting documents A.1 Existing Structure A.2 Proposed Structure A.3 Project Report A.4 Any other information

Appendix I Self-declaration from the main individual promoter of the promoter group Undertaking Form I Form II Form III Form IV Form V Form VI Form VII Form VIII Form IX

Appendix II Appendix III Form X Form XI

Chapter-I ‘On tap’ Licensing of Small Finance Banks in the Private Sector

A. Preamble

The Reserve Bank had issued the Guidelines for Licensing of “Small Finance Banks” in the Private Sector on November 27, 2014. The licensing process culminated in the grant of in-principle approval to ten applicants, who have since established the banks. It was notified in these Guidelines that after gaining experience in dealing with these banks, the Reserve Bank will consider ‘on tap’ licensing of these banks. After a review of the performance of the existing small finance banks and to encourage competition, it was announced in the Second Bi-monthly Monetary Policy Statement, 2019-20 dated June 06, 2019 that the Reserve Bank would put out draft guidelines for ‘on tap’ licensing of such banks. Accordingly, the draft guidelines were published on the RBI website on September 13, 2019 inviting comments from the stakeholders and members of the public. The final Guidelines, taking into consideration the responses received, were issued on December 05, 2019. These guidelines have been updated with revised instructions in this area.

B. Definitions

1. ‘Promoter’ means, the person who together with his relatives [as defined in Section 2 (77) of the Companies Act, 2013 and Rules made there under], by virtue of his ownership of voting equity shares, will be/ is in effective control of the bank / NOFHC, and includes, wherever applicable, all entities which form part of the Promoter Group.

Explanation: The term ‘effective control’ means any arrangement whether in the form of shareholding or agreement or otherwise, which enables exercise of control.

2. ‘Promoting entity’ means the entity that promotes the bank.

3. ‘Promoter Group’ includes:

A. the promoter;

B. relatives of the promoter [as defined in Section 2 (77) of the Companies Act, 2013 and Rules made there under]; and

C. in case promoter is a body corporate:

• a subsidiary or holding company of such body corporate;
• any body corporate in which the promoter holds ten per cent or more of the equity share capital or which holds ten per cent or more of the equity share capital of the promoter;
• any body corporate in which a group of individuals or companies or combinations thereof which hold twenty per cent or more of the equity share capital in that body corporate also holds twenty per cent or more of the equity share capital of the promoter;
• Joint venture/Associate (as defined in terms of Ind AS 28) with the promoter;
• Related party (as defined in terms of Ind AS 24) of the promoter; and

D. in case the promoter is an individual:

• any body corporate in which ten per cent or more of the equity share capital is held by the promoter or a relative of the promoter or a firm or Hindu Undivided Family in which the promoter or any one or more of his immediate relative is a member;
• any body corporate in which a body corporate as provided in (4) (i) above holds ten per cent or more, of the equity share capital;
• any Hindu Undivided Family or firm in which the aggregate shareholding of the promoter and his immediate relatives is equal to or more than ten per cent of the total; and

E. all persons who are declared as promoters in the Articles of Association of the bank/ group companies.

F. all persons whose shareholding is aggregated for the purpose of disclosing in the prospectus (As per SEBI (Issue of Capital & Disclosure Requirements) Regulations, 2018) under the heading "shareholding of the promoter group";

G. Entities sharing a common brand name with entities discussed in (C) (i), (C) (ii), (C) (iii), (C) (iv), (C) (v), where the promoter is a body corporate and (D) (i), (D) (ii), (D) (iii) where the promoter is an individual;

Provided that a financial institution, scheduled commercial bank, foreign institutional investor or mutual fund shall not be deemed to be promoter group merely by virtue of the fact that ten per cent or more of the equity share capital of the promoter is held by such institution unless such investment is strategic in nature.

4. ‘Shell bank’ has the same meaning as stated in Reserve Bank of India (Small Finance Banks – Know Your Customer) Directions, 2025.

5. ‘Significant Beneficial Owner’ has the same meaning as stated in Companies (Significant Beneficial Owners) Rules, 2018.

C. Guidelines

C.1 Registration, licensing and regulations

6. The small finance bank shall be registered as a public limited company under the Companies Act, 2013. It will be licensed under Section 22 of the Banking Regulation Act, 1949 and governed by the provisions of the Banking Regulation Act, 1949; Reserve Bank of India Act, 1934; Foreign Exchange Management Act, 1999; Payment and Settlement Systems Act, 2007; Credit Information Companies (Regulation) Act, 2005; Deposit Insurance and Credit Guarantee Corporation Act, 1961; other relevant Statutes and the Directives, Prudential Regulations and other Guidelines/ Instructions issued by Reserve Bank of India (RBI) and other regulators from time to time. The small finance banks will be given scheduled bank status once they commence their operations.

C.2 Objectives

7. The objectives of setting up of small finance banks will be for furthering financial inclusion by (i) provision of savings vehicles primarily to unserved and underserved sections of the population, and (ii) supply of credit to small business units; small and marginal farmers; micro and small industries; and other unorganised sector entities, through high technology-low cost operations.

C.3. Eligible promoters

8. Eligibility Criteria

(1) Resident individuals/professionals (Indian citizens), singly or jointly, each having at least 10 years of experience in banking and finance at a senior level; and Companies and Societies in the private sector, that are owned and controlled by residents (as defined in FEMA Rules and Regulations, as amended from time to time), and having successful track record of running their businesses for at least a period of five years, will be eligible as promoters to set up small finance banks.

(2) Existing Non-Banking Finance Companies (NBFCs), Micro Finance Institutions (MFIs), and Local Area Banks (LABs) in the private sector, that are controlled by residents (as defined in FEMA Rules and Regulations, as amended from time to time), and having successful track record of running their businesses for at least a period of five years, can also opt for conversion into small finance banks after complying with all legal and regulatory requirements of various authorities and if they conform to these guidelines.