Small Finance Bank

About Small Finance Bank

• SFBs are specialized banks that are licensed by RBI to provide financial services and products to low-income individuals and underserved communities, including microfinance and micro-enterprise services, as well as other basic banking services. 
• SFBs are granted the scheduled bank status after being operational and are deemed suitable under section 42 of the RBI Act, 1934.
• Objectives
  • To provide financial inclusion to these segments of the population who are often excluded from the traditional banking system.
  • SFBs help them to have access to financial products such as small loans, savings, insurance, and other basic banking services.
• Eligibility
  • Resident individuals/professionals (Indian citizens), singly or jointly, each having at least 10 years of experience in banking and finance at a senior level are eligible for SFBs.
  • Companies and Societies in the private sector, that is owned and controlled by residents and having successful track record of running their businesses for at least a period of five years.
    • Existing Non-Banking Finance Companies (NBFCs), Micro Finance Institutions (MFIs), and Local Area Banks (LABs) in the private sector, that are controlled by residents and having successful track record of running their businesses for at least a period of five years, can also opt for conversion into small finance banks after complying with all legal and regulatory requirements of various authorities.
• Other norms to be followed by SFBs
  • Capital to Risk Weighted Assets Ratio: They are required to maintain a minimum CRAR of 15%.
  • Priority Sector Lending: They are required to extend 75% of their Adjusted Net Bank Credit to Priority Sector Lending.
  • SFBs are required to open at least 25% of their total branches in unbanked rural areas.
  • Required paid up capital: The minimum paid-up voting equity capital for small finance banks shall be Rs.200 crore.

Regulation: SFBs are registered as public limited companies under the Companies Act, 2013 and governed by Banking Regulations Act, 1949; RBI Act, 1934 and other relevant Statutes and Directives from time to time.

Q1: What is a Non-Banking Financial Company?

An NBFC is a company registered under the Companies Act 1956 engaged in the business of loans and advances, acquisition of shares/stocks/bonds/debentures/securities issued by the Government or local authority or other marketable securities of a like nature.

Source: SFBs should be worth Rs 1,000 cr to become universal banks, says RBI