Reserve Bank of India's internal working group has recommended that payments banks can convert to a small finance bank if they have run operations for three years.

For converting to a small finance bank, a payments bank should have the ability to start a lending business. Currently payments banks can only provide services such as savings bank account, remittance services and other payment options.

The minimum initial capital requirement for licensing new banks should be enhanced from Rs 500 crore to Rs 1,000 crore for universal banks, and from Rs 200 crore to Rs 300 crore for small finance banks.

The minimum initial capital requirement for licensing new banks should be enhanced from Rs 500 crore to Rs 1,000 crore for universal banks, and from Rs 200 crore to Rs 300 crore for small finance banks.

Small finance banks and payments banks may have to be listed within six years from the date of reaching net worth equivalent to prevalent entry capital requirement prescribed for universal banks' or '10 years from the date of commencement of operations', whichever is earlier.

Non-operative financial holding companies (NOFHC) should continue to be the preferred structure for all new licences for universal banks, the RBI internal working group has stated. However, it should be mandatory only in cases where the individual promoters or promoting entities and converting entities have other group entities.

While banks licensed before 2013 may move to an NOFHC structure at their discretion, once the NOFHC structure attains a tax-neutral status, all banks licensed before 2013 shall move to the NOFHC structure within five years from announcement of tax-neutrality, the group has said.