Understanding Universal Banking Licences in India

Disclaimer: Ujjivan Small Finance Bank is not responsible for the accuracy of the information provided herein. The blog is written for generic information.

July 21, 2025

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A Universal Banking Licence permits a financial institution to offer a wide array of banking services, including commercial and investment banking, under a single umbrella. This model aims to provide comprehensive financial solutions to customers, enhancing convenience and operational efficiency.

 

The Reserve Bank of India's 'On Tap' Licensing Guidelines

In August 2016, the Reserve Bank of India (RBI) introduced the 'on tap' licensing policy for universal banks in the private sector. This policy allows eligible entities to apply for a banking licence at any time, promoting a more dynamic and competitive banking environment. Key aspects of these guidelines include:

 

1. Eligibility Criteria

  • Individuals/Professionals: Resident individuals with at least 10 years of experience in banking and finance at a senior level are eligible to promote universal banks.
  • Entities/Groups: Private sector entities owned and controlled by residents, with a successful track record of at least 10 years, are eligible. However, large industrial houses are excluded but may hold up to a 10% stake in such banks.
  • Non-Banking Financial Companies (NBFCs): NBFCs controlled by residents and with a successful track record of at least 10 years can apply, provided they meet certain criteria.
  • Conversion of Small Finance Banks: According to RBI norms, to be eligible for conversion into a universal bank, these banks must:
  1. Have a minimum net worth of ₹1,000 crore.
  2. Hold scheduled status.
  3. Have a satisfactory track record of at least five years.
  4. Maintain a gross non-performing asset (NPA) ratio of 3% or less and a net NPA ratio of 1% or less over the past two financial years.
  5. Be listed on stock exchanges.

 

2. Corporate Structure

  • The requirement to establish a Non-Operative Financial Holding Company (NOFHC) is not mandatory for individual promoters or standalone entities without other group entities.
  • For promoters with other group entities, setting up the bank through an NOFHC is mandatory, with at least 51% of the total paid-up equity capital of the NOFHC owned by the promoter/promoter group.

 

3. Capital Requirements

  • The initial minimum paid-up voting equity capital for a bank is set at Rs 5 billion.
  • Promoters must hold a minimum of 40% of the paid-up voting equity capital, locked in for five years from the commencement of business.
  • This shareholding should be reduced to 15% within 15 years.

 

4. Foreign Shareholding

  • Foreign shareholding is permitted as per the existing Foreign Direct Investment (FDI) policy, with an aggregate limit of 74%, subject to the minimum promoter shareholding requirements.

 

5. Corporate Governance

  • The bank's board should have a majority of independent directors.
  • The bank must comply with the Banking Regulations Act, 1949, and existing prudential norms applicable to scheduled commercial banks.

 

6. Financial Inclusion

  • Applicants must submit a viable business plan addressing how the bank proposes to achieve financial inclusion.
  • At least 25% of the bank's branches should be located in unbanked rural centers.

 

7. Listing Requirements

  • The bank is required to list its shares on stock exchanges within six years of commencing business.

 

These guidelines aim to foster a robust and inclusive banking sector in India by encouraging the establishment of new universal banks with sound governance and a focus on financial inclusion.

 

Recent Developments

In February 2025, Ujjivan Small Finance Bank applied for Universal Licence to shift from a small finance bank to a universal bank. The move would allow Ujjivan to introduce more products.

Final Thoughts

The RBI's 'on tap' licensing policy represents a significant step toward enhancing the dynamism and inclusivity of India's banking sector. By setting clear eligibility criteria and emphasizing financial inclusion, the RBI aims to encourage the establishment of universal banks that can cater to diverse customer needs while maintaining financial stability.

 

Disclaimer:

The contents herein are only for informational purposes and generic in nature. The content does not amount to an offer, invitation or solicitation of any kind to buy or sell, and are not intended to create any legal rights or obligations. This information is subject to updation, completion, amendment and verification without notice. The contents herein are also subject to other product-specific terms and conditions, as well as any applicable third-party terms and conditions, for which Ujjivan Small Finance Bank assumes no responsibility or liability.

 

Nothing contained herein is intended to constitute financial, investment, legal, tax, or any other professional advice or opinion. Please obtain professional advice before making investment or any other decisions. Any investment decisions that may be made by the you shall be at your own sole discretion, independent analysis and evaluation of the risks involved. The use of any information set out in this document is entirely at the user’s own risk.  Ujjivan Small Finance Bank Limited makes no representation or warranty, express or implied, as to the accuracy and completeness for any information herein. The Bank disclaims any and all liability for any loss or damage (direct, indirect, consequential, or otherwise) incurred by you due to use of or due to investment, product application decisions made by you on the basis of the contents herein. While the information is prepared in good faith from sources deemed reliable (including public sources), the Bank disclaims any liability with respect to accuracy of information or any error or omission or any loss or damage incurred by anyone in reliance on the contents herein, in any manner whatsoever.

 

To know more about Ujjivan Small Finance Bank Products Visit:"https://www.ujjivansfb.in"

 

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to Ujjivan Small Finance Bank Limited or its licensors. Unauthorised use or misuse of any intellectual property, or other content displayed herein is strictly prohibited and the same is not intended for distribution to, or use by, any person in any jurisdiction where such distribution or use would (by reason of that person’s nationality, residence or otherwise) be contrary to law or registration or would subject Ujjivan Small Finance Bank Limited or its affiliates to any licensing or registration requirements.

   

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FAQs

1. What is a Universal Banking Licence?

A Universal Banking Licence allows a financial institution to offer a comprehensive range of services, including both commercial and investment banking, under one roof.

2. Who is eligible to apply for a Universal Banking Licence in India?

Eligible applicants include resident individuals with at least 10 years of senior-level experience in banking and finance, private sector entities owned and controlled by residents with a successful track record of at least 10 years, and certain NBFCs controlled by residents.

3. Are large industrial houses allowed to promote universal banks?

No, large industrial houses are excluded from promoting universal banks but are permitted to hold up to a 10% stake in such banks.

4. What is the minimum capital requirement for setting up a universal bank?

The initial minimum paid-up voting equity capital is Rs 5 billion, and the bank must maintain a minimum net worth of Rs 5 billion at all times.

5. Is setting up a Non-Operative Financial Holding Company (NOFHC) mandatory?

The NOFHC structure is not mandatory for individual promoters or standalone entities without other group entities. However, it is required for promoters with other group entities.

6. What are the foreign shareholding limits in universal banks?

Foreign shareholding is allowed up to 74% as per the existing FDI policy, subject to the minimum promoter shareholding requirements.

7. What corporate governance norms must universal banks adhere to?

Universal banks must comply with the Banking Regulations Act, 1949, existing prudential norms, and ensure that their board comprises a majority of independent directors.

8. How do universal banks contribute to financial inclusion?

Universal banks are required to open at least 25% of their branches in unbanked rural centers and must present a viable business plan detailing their approach to achieving financial inclusion.

9. What is the timeline for listing a universal bank's shares on stock exchanges?

A universal bank must list its shares within six years of commencing business.

10. Can small finance banks convert into universal banks?

Yes, listed small finance banks with a minimum net worth of Rs 1,000 crore, a satisfactory track record of at least five years, and compliant NPA ratios (3% gross NPA and 1% net NPA) over the past two financial years are eligible for conversion.

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