Small Finance Banks

PO V Interview Materials
IBPS PO V Interview Materials

SMALL FINANCE BANKS
The Small Finance Bank (SFB) is a private financial institution intended to further the objective of
financial inclusion by primarily undertaking basic banking activities of acceptance of deposits and lending
to un-served and underserved sections including small business units, small and marginal farmers, micro
and small industries and unorganised sector entities, but without any restriction in the area of
operations, unlike Regional Rural Banks or Local Area Banks.
Small Finance Banks were created pursuant to the announcement in Union Budget 2014-2015,
presented on July 10, 2014. RBI issued the Guidelines on 27 November 2014 for licensing and regulation
of SFBs. On 16 September 2015, RBI decided to grant in-principle approval to 10 applicants to set up
small finance banks under the Guidelines issued on November 27, 2014.
The concept of small finance banks was also one of the recommendations in the 2009 Report - A
Hundred Small Steps - of the Committee on Financial Sector Reforms headed by Dr. Raghu Ram Rajan.
Resident individuals/professionals with 10 years of experience in banking and finance and companies
and societies owned and controlled by residents will be eligible to set up small finance banks. Existing
Non-Banking Finance Companies (NBFCs), Micro Finance Institutions (MFIs), and Local Area Banks (LABs)
that are owned and controlled by residents can also opt for conversion into small finance banks.
The minimum capital for SFBs is prescribed at Rs. 100 crore with an initial contribution of 40% coming
from the promoters, which over a period of 12 years, have to be reduced to 26%. Foreign Investment is
permitted as in the case of other private sector commercial banks. After the small finance bank reaches
the net worth of Rs.500 crore, listing of its shares on a stock exchange will be mandatory within three
years of reaching that net worth.
SFBs are full-fledged banks in contrast to payments banks created around the same time. Hence, they
are subject to all prudential norms and regulations of RBI as applicable to existing commercial banks
like maintenance of Cash Reserve Ratio (CRR) and Statutory Liquidity Ratio (SLR).
The target group of SFBs are similar to that of Local Area Banks. They are required to extend 75 per cent
of its Adjusted Net Bank Credit (ANBC) to the sectors eligible for classification as priority sector lending
(PSL) by the Reserve Bank. At least 50 per cent of its loan portfolio should constitute loans and
advances of upto Rs. 25 lakh.
However, SFBs can also undertake other non-risk sharing simple financial services activities, not
requiring any commitment of own fund, such as distribution of mutual fund units, insurance products,
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PO V Interview Materials
pension products, etc. with the prior approval of the RBI and after complying with the requirements of
the sectoral regulator for such products. The small finance bank can also become a Category II
Authorized Dealer in foreign exchange business for its clients requirements. However it cannot set up
subsidiaries to undertake non-banking financial services activities.
There will not be any restriction in the area of operations of small finance banks; however, preference
will be given to those applicants who in the initial phase set up the bank in a cluster of under-banked
States / districts. it is stipulated that at least 25 per cent of its branches shall be in unbanked rural
centers.
Benefits of Small Finance Bank Licenses

Small Finance Banks licenses are more restrictive than a regular bank license, such as one given to State
Bank of India (SBI) or ICICI Bank. While small finance banks can undertake fundamental banking
activities such as deposit taking and lending, they are not allowed to set up subsidiaries. Also the loan
ticket size is much smaller in Small Finance Banks compared to regular banks. RBI has mandated that
the activities of promoters of small finance banks should not be mixed with banking operations.
List of Small Finance Banks Granted by RBI:

1. Au Financiers India Ltd A Jaipur based NBFC which currently provides financing for cars and
heavy vehicles in the state of Rajasthan.
2. Capital Local Area Bank Ltd A Jalandhar based Local Area Bank having operations in the state
of Punjab.
3. Disha Microfin Pvt Ltd A MFI headquartered in Ahmedabad and having microfinance
operations predominantly in the West of India.
4. Equitas Holdings Pvt Ltd A diversified microfinance company with headquarters in Chennai
and having operations in microfinance and micro-housing loans.
5. ESAF Microfinance The Kerala focused MFI has its headquarters in Chennai and has done
pioneering work in the state of Tamil Nadu.
6. Janalakshmi Financial Services Pvt Ltd, Headquartered in Bangalore, Janalakshmi is one of
Indias largest microfinance companies.
7. RGVN North East Microfinance Ltd is a MFI based in North East India with its headquarters in
Guwahati, Assam.
8. Suryoday Microfinance Pvt Ltd is a MFI based in Mumbai with operations in Maharashtra,
Gujarat and Orissa.
9. Ujjivan Financial Services Pvt Ltd A Bangalore based MFI and one of the first microfinance
companies to scale up operations in urban India.
10. Utkarsh Microfinance Pvt Ltd with headquarters in Varanasi and operations spread across the
states of Uttar Pradesh
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Small Finance Banks

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PO V Interview Materials

IBPS PO V Interview Materials

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Benefits of Small Finance Bank Licenses

List of Small Finance Banks Granted by RBI:

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