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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 inclusion by primarily undertaking basic banking banking activities of acceptance of deposits 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 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 c an 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,
pension products, etc. with the prior approval of t he 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 restr iction in the area of operations of small finance banks; however, pre ference 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 it s 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 IICICI CICI 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 m ixed with banking operations.
List of Small Finance Banks Granted by RBI: 1. Au Financiers India Ltd – A Jaipur based NBFC which curre ntly 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 it’s headquarters in Chennai and has don e pioneering work in the state of Tamil Nadu. 6. Janalakshmi Financial Services Pvt Ltd , Headquartered in Bangalore, Janalakshmi is one of India’s largest microfinance companies. 7. RGVN North East Microfinance Ltd is a MFI based in North East India with it’s h eadquarters 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
