In a significant development for AU Small Finance Bank and Fino Payments Bank, the Reserve Bank of India (RBI) may soon evaluate their applications to transition to a universal bank and a small finance bank (SFB), respectively. This move could mark a crucial step in the expansion aspirations of these institutions.
On the evening of January 20, the RBI announced the establishment of a Standing External Advisory Committee (SEAC) to assess bank licence applications.
Chaired by former RBI Deputy Governor MK Jain, the committee comprises eminent members, including Revathy Iyer, Director of the Central Board, RBI; Parvathy V Sundaram, former Executive Director, RBI; Hemant G Contractor, former MD of State Bank of India and ex-Chairman of the PFRDA; and NS Kannan, former MD & CEO of ICICI Prudential Life.
Primary Role of SEAC
The SEAC’s main responsibility is to evaluate the eligibility and suitability of applicants seeking licences to operate universal banks and small finance banks in India.
Initially, applications undergo screening by the RBI to confirm “prima facie eligibility.” Once this is established, the SEAC conducts a detailed assessment of the applications. The current tenure of the committee extends for three years, until January 19, 2028.
Current Applicants
Three applicants are under consideration. VFS Capital has applied for an SFB licence under the ‘on-tap’ licensing guidelines for private sector SFBs. Meanwhile, AU Small Finance Bank and Fino Payments Bank seek status upgrades.
AU Small Finance Bank submitted its application to the RBI in September 2024, aiming to transition from a small finance bank to a universal bank. Fino Payments Bank followed suit, applying for an SFB licence on January 8, 2025.
These developments have also reflected in market movements. On January 21, shares of AU SFB traded flat at Rs 598.40 on the Bombay Stock Exchange (BSE), while Fino Payments Bank shares saw a 2.08% increase, trading at Rs 308.55.
Historical Context and SEAC’s Second Term
This marks the second instance of the RBI forming an external advisory committee to review licence applications. The first SEAC, formed in March 2021 and chaired by former Deputy Governor Shyamala Gopinath, reviewed 12 applications for SFB and universal bank licences. However, no licences were awarded during its tenure.
Prominent applicants in 2021 included Dvara Kshetriya Gramin Financial Services Private Limited, Tally Solutions Private Limited, and Annapurna Finance Private Limited. The reconstitution of SEAC after a nine-month gap signals renewed momentum in processing such applications.
A Potential Turning Point
The RBI’s decision to re-establish the SEAC could provide clarity on its regulatory approach towards expanding banking services in India. The assessment of AU SFB and Fino Payments Bank will be closely watched, as successful upgrades could signal new opportunities for similar institutions.
AU SFB’s ambition to become a universal bank aligns with its growth trajectory, while Fino Payments Bank’s bid for an SFB licence could enable it to expand its range of financial services. Both moves align with the RBI’s objective of deepening financial inclusion and enhancing banking outreach in underserved areas.
Conclusion
As the SEAC prepares to evaluate these applications, the outcome could shape the landscape of India’s banking sector. The introduction of a streamlined process and expert oversight signals a robust regulatory framework, ensuring that only eligible and suitable institutions receive the green light.
With the second SEAC’s tenure extending until 2028, the coming years will likely witness pivotal decisions that redefine banking in India.
