Small Finance Bank In India: Information, Lists & Eligibility

Small Finance Banks (SFBs) are specialized financial entities operating in India, with a primary focus on offering basic banking and financial services to underserved and unbanked segments of the population, particularly in rural and semi-urban regions. These banks play a pivotal role in the government’s initiatives to foster financial inclusion and expand banking facilities across the nation. Understanding the characteristics and functions of Small Finance Banks is crucial for aspirants preparing for banking awareness sections, and this comprehensive information aims to fulfill their needs.

History of Small Finance Banks

Small Finance Banks (SFBs) are a special type of banks in India. When a bank has an SFB license, it can do basic banking activities like taking deposits from people and giving out loans. Here is a detailed history of Small Finance Banks in India:

July 2014Initial guidelines for small finance banks released by RBI
November 2014Final rules for small finance banks issued by RBI
February 201572 groups applied for a small finance bank license
September 2015RBI granted temporary licenses to ten groups to become small finance banks
April 2016Capital Small Finance Bank became the first to start operations
April 2021Shivalik Mercantile Co-operative Bank transformed into a Small Finance Bank

Acts Applicable On Small Finance Banks

The small finance bank should be registered as a public limited company under the Companies Act, 2013. The following acts are applicable to Small Finance Banks:

  • Banking Regulation Act, 1949
  • Foreign Exchange Management Act, 1999
  • Reserve Bank of India Act, 1934
  • Payment & Settlement Systems Act, 2007
  • Credit Information Companies (Regulation) Act, 2005
  • Deposit Insurance and Credit Guarantee Corporation Act, 1961

Small Financial Banks and Objectives

Here are the main objectives of establishing Small Finance Banks in India:

Financial Inclusion

Small Finance Banks (SFBs) strive to advance financial inclusion by serving the requirements of small business enterprises, small and marginalized farmers, micro and small-scale industries, as well as entities operating in the informal sector.

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Savings Options

Providing savings options mainly to those who currently lack them.

Credit Support

Offering loans to small businesses, farmers, micro and small industries, and unorganized sector entities.

Alternative Institution

Small finance banks possess the capability to offer an alternative to certain established institutions, given their specific emphasis on catering to small and medium enterprises, the informal sector, as well as small and marginalized farmers. This strategic focus aims to bolster financial inclusion efforts and cater to diverse underserved clientele in rural areas, as well as tier three and four cities and towns.

High-Tech, Low-Cost Approach

Using advanced technology to keep operations efficient and costs low.

Regulatory Provisions Related To Small Finance Banks

Here are a few regulatory guidelines as released by the Reserve Bank of India:

Minimum Paid-up Equity CapitalINR 200 crore
Name RequirementMust include the words “Small Finance Bank” in the name
RBI Approval for Financial OperationsPrior approval needed for activities like mutual fund distribution, pension, and insurance products
Branches in Unbanked Areas25% of branches must be in unbanked parts of the country
Reserve RequirementsMaintain CRR (Cash Reserve Ratio) and SLR (Statutory Liquidity Ratio)
Priority Sector Lending75% of Adjusted Net Bank Credit (ANBC) to eligible priority sectors
Loan Portfolio CompositionAt least 50% of loan portfolio for loans and advances up to INR 25 lakh.

Guidelines Of RBI Related To Operations Of Small Finance Banks

Here are a few guidelines issued by RBI, that oversee the operational aspects of Small Finance Banks:

  • Minimum Paid-up Equity Capital: INR 200 crore
  • Name Requirement: Must include the words “Small Finance Bank” in the name
  • RBI Approval for Financial Operations: Prior approval needed for activities like mutual fund distribution, pension, and insurance products.
  • Branches in Unbanked Areas: 25% of branches must be in unbanked parts of the country
  • Reserve Requirements: Maintain CRR (Cash Reserve Ratio) and SLR (Statutory Liquidity Ratio)
  • Priority Sector Lending: 75% of Adjusted Net Bank Credit (ANBC) to eligible priority sectors
  • Loan Portfolio Composition: At least 50% of the loan portfolio for loans and advances up to INR 25 lakh.

Scope of Activities of Small Finance Banks

The scope of activities for small finance banks includes:

  • Basic Banking Services
  • Financial Inclusion
  • Microfinance
  • Priority Sector Lending
  • Unbanked Regions
  • Technology-driven Operations
  • Mutual Fund Distribution
  • Pension and Insurance Products
  • Retail Banking
  • Non-Resident Indian (NRI) Services
  • Corporate Banking
  • Housing Finance
  • Mobile and Digital Banking
  • Financial Literacy and Education
  • Promotion of Self-Help Groups (SHGs)
  • Community Development

List of Small Finance Banks In India

Here is a list of a few small finance banks in India:

Sl.No.Original Licensee/PromoterCommencedBank NameHeadquarters
1Ujjivan Financial Services Pvt Ltd1 Feb 2017Ujjivan Small Finance BankBangalore
2Janalakshmi Financial Services Pvt Ltd29 Mar 2018Jana Small Finance BankBangalore
3Equitas Holdings Pvt Ltd5 Sep 2016Equitas Small Finance BankChennai
4Au Financiers India Ltd19 Apr 2017AU Small Finance BankJaipur
5Capital Local Area Bank Ltd24 Apr 2016Capital Small Finance BankJalandhar
6Disha Microfin Pvt Ltd21 Jul 2017Fincare Small Finance BankBangalore
7ESAF Microfinance17 Mar 2017ESAF Small Finance BankThrissur
8RGVN North East Microfinance Ltd17 Oct 2017North East Small Finance BankGuwahati
9Suryoday Microfinance Pvt Ltd23 Jan 2017Suryoday Small Finance BankNavi Mumbai
10Utkarsh Microfinance Pvt Ltd23 Jan 2017Utkarsh Small Finance BankVaranasi
11Shivalik Mercantile Co-operative Bank Ltd26 Apr 2021Shivalik Small Finance BankNoida
12Centrum Financial Services Limited and BharatPe1 Nov 2021Unity Small Finance BankDelhi

FAQ for Small Finance Banks

1. What is the history of Small Finance Banks in India?

  • Small Finance Banks (SFBs) were introduced by the Reserve Bank of India (RBI) in July 2014. The final rules for SFBs were issued in November 2014, and interested organizations had to apply by January 2015. The first SFB, Capital Small Finance Bank, commenced operations in April 2016.

2. What are the objectives of establishing Small Finance Banks?

  • The objectives include promoting financial inclusion, providing savings options, offering credit support to small businesses and marginalized farmers, and serving as an alternative institution catering to the needs of small and medium enterprises.

3. What regulatory provisions apply to Small Finance Banks?

  • Small Finance Banks are governed by various acts including the Banking Regulation Act, 1949, Foreign Exchange Management Act, 1999, and Reserve Bank of India Act, 1934. They are also subject to guidelines related to minimum paid-up capital, branch distribution, priority sector lending, and more.

4. What are the guidelines issued by the RBI regarding the operations of Small Finance Banks?

  • The RBI has issued guidelines regarding minimum paid-up equity capital, name requirements, RBI approval for financial operations, branches in unbanked areas, reserve requirements, priority sector lending, loan portfolio composition, transition to universal bank, and more.

5. What is the scope of activities for Small Finance Banks?

  • The scope includes offering basic banking services, financial inclusion initiatives, microfinance, priority sector lending, serving unbanked regions, leveraging technology for operations, distributing mutual funds, providing pension and insurance products, retail banking, and more.
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