These guidelines include:

Payments banks can apply for conversion into small finance banks (SFBs) after five years of operation.

The promoter of a payments bank is eligible to set up an SFB, provided that both banks come under the non-operating financial holding company (NOFHC) structure.

The minimum paid-up capital requirement for SFBs has been raised from  ?100 crore to ?200 crore.

SFBs should be listed within three years of reaching a net worth of  ?500 crore. They will be given scheduled bank status immediately upon commencement of operations, and will have general permission to open banking outlets from the date of commencement of operations.

Promoters share:

The promoter should hold a minimum of 40% of the paid-up voting equity capital for five years.

If the initial promoter shareholding is above 40%, it should be brought down to 40% within a period of five years, 30% within 10 years, and 15% in 15 years.

What about Urban cooperative banks?

Primary urban cooperative banks can convert into SFBs, provided they comply with the on-tap licencing guidelines. The minimum net worth of such SFBs will be  ?100 crore and has to be increased to  ?200 crore within five years from commencement of business.

Implications and significance of these guidelines:

Existing rules do not allow payments banks to lend and deposits are capped at  ?1 lakh per customer.

If these entities get the licence of small finance banks, it will give them access to more deposits and boost their profitability, which is at present under pressure.