Small Finance Bank

April 27, 2024

The Reserve Bank of India (RBI) has said Small Finance Banks (SFBs) should have a minimum net worth of Rs 1,000 crore to become universal banks in accordance with the on-tap licensing norms.

About Small Finance Banks (SFBs):

They 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.
They 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.
- To provide 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.
- They 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 200 crore.
Regulation: They are registered as public limited companies under the Companies Act, 2013and governed by Banking Regulations Act, 1949; RBI Act, 1934 and other relevant Statutes and Directives from time to time.