Conversion of an NBFC into a Bank in India is a highly regulated pathway that allows a well-governed Non-Banking Financial Company to evolve into a Universal Bank or Small Finance Bank. The process is governed by the Reserve Bank of India (RBI) and involves stringent eligibility, capital, governance, and prudential norms.
In this Saving Mantra guide, we explain what NBFC-to-Bank conversion means and provide a step-by-step process, including routes, documents, timelines, and post-approval compliance.
What Does Conversion of NBFC into Bank Mean?
It refers to obtaining a banking licence from RBI that permits an NBFC to accept deposits and offer the full suite of banking services. NBFCs cannot accept demand deposits; banks can—subject to RBI supervision.
Routes Available for NBFC to Become a Bank
- Universal Bank Licence – Full-service commercial banking
- Small Finance Bank (SFB) – Focus on financial inclusion and priority sectors
(RBI evaluates applications based on the applicable licensing framework at the time of application.)
Key Eligibility Criteria (Indicative)
- Minimum Net Worth: As prescribed by RBI for the chosen route (significantly higher for Universal Banks)
- Track Record: Sound financials, compliance history, and governance
- Fit & Proper Promoters/Directors
- Capital Adequacy: As per RBI norms
- Inclusion Focus: Especially for SFB route
- Technology & Risk Frameworks: Robust IT, cybersecurity, AML/KYC
Benefits of Converting NBFC into Bank
- Ability to accept deposits (CASA)
- Wider product suite and customer reach
- Lower cost of funds over time
- Enhanced credibility and systemic role
- Long-term scalability
Step-by-Step Process for Conversion of NBFC into Bank in India
Step 1: Choose the Banking Route
Decide between Universal Bank or Small Finance Bank based on business model, net worth, and inclusion goals.
Step 2: Capital & Structure Readiness
Meet prescribed net worth, streamline shareholding, and ensure promoter dilution plans where required.
Step 3: Strengthen Governance & Policies
Prepare board-approved policies:
- Risk management & ICAAP
- AML/KYC & compliance
- IT, cybersecurity, and data protection
- Credit, treasury, and recovery frameworks
Step 4: Prepare the RBI Application
Compile a comprehensive application including:
- Detailed business plan (3–5 years)
- Financial projections
- Promoter background & fit-and-proper declarations
- Technology and inclusion roadmap
Step 5: Submit Application to RBI
File the application as per the prevailing RBI licensing window/guidelines.
Step 6: RBI Due Diligence
RBI conducts rigorous scrutiny—financials, governance, ownership, compliance culture—and may seek clarifications.
Step 7: In-Principle Approval
RBI issues in-principle approval with conditions to be fulfilled within a stipulated time.
Step 8: Set-Up & Transition
Complete conditions: capital infusion, systems readiness, branch/network planning, HR, audits, and statutory registrations.
Step 9: Final Banking Licence
Upon satisfactory compliance, RBI grants the Banking Licence, enabling commencement of banking operations.
Documents Typically Required
- Corporate documents (COI, MOA/AOA)
- Audited financial statements
- Net worth certificates
- Promoter/Director KYC
- Business plan & policy manuals
- Board resolutions and declarations
Timeline
- 12–24 months or more, depending on route, readiness, and RBI review cycles.
Post-Licence Compliance (High-Level)
- CRR/SLR maintenance
- Priority Sector Lending
- Ongoing RBI reporting & inspections
- Enhanced consumer protection & grievance redressal
- Continuous IT & cybersecurity compliance
Risks & Considerations
- High capital and compliance costs
- Long approval timelines
- Promoter dilution and governance expectations
- Operational transformation challenges
Why Choose Saving Mantra?
- RBI-focused regulatory expertise
- End-to-end readiness assessment
- Application drafting & regulator liaison
- Governance and policy framework support
- Post-approval compliance handholding
Conclusion
Conversion of an NBFC into a Bank in India is complex but transformative. With strong capital, governance, and a compliant roadmap, eligible NBFCs can successfully transition into banking. Saving Mantra helps you navigate every step—strategically and compliantly.
Disclaimer
This content is for general informational purposes only and does not constitute legal, financial, or regulatory advice. RBI policies, eligibility norms, and licensing frameworks may change. Consult qualified professionals before initiating NBFC-to-Bank conversion.