Small Finance Bank in India
Small Finance Bank is a Private bank which accepts deposits and can provide Loan. This is registered as a Public Limited company under the Companies Act 2013. The Minimum capital of Rs. 200 crore is required to open a Small Finance Bank. Small Finance Bank in India have to provide 75% of the credit to the priority sector . It means that If the Bank provides Total Loan of Rs. 10 crores then the Small Finance Bank must give Rs. 7.50 crores to the Priority Sector (Agriculture, Education, Social Infrastructure, Housing, Export credit, Micro, Small & Medium Enterprises, Renewable Energy, Other are called Priority Sector). There is one committee which is related to Small Finance Bank is “Usha Thorat Committee”. Any Individuals or Professionals can open Small Finance Bank who have at least 10 years of experience in the Microfinance, Bank, NBFC, finance companies .
Why Small Finance Bank is Required?
As We know that We have many Banks (Government and Private Bank) in India. Then why we require Small Finance Bank ? There are lots of people who is working in the unorganized sector, small farmers , small business , low-income household , they also require loan. So, Small Finance Bank helps in promoting banking activities like accepting deposits and can provide loan to the poor people so that they can enhance their personal and professional activities. In short, It provides Low amount of loan to their basic requirement. These banks are opened in Rural areas so that maximum number of people can involve in the financial services .
|Small Finance Bank|
Small Finance Bank in India
Right now, There are 11 Small Finance banks in India.
Small Finance Bank
|Date (They became SFB)||Head Quarters|
|Capital Small Finance Bank||24th April 2016||Jalandhar, Punjab|
|Equitas Small Finance Bank||05th Sept 2016||Chennai, Tamil Nādu|
|Suryoday Small Finance Bank||23rd Jan 2017||Navi Mumbai, Mumbai|
|Utkarsh Small Finance Bank||23rd Jan 2017||Varanasi, UP|
|Ujjivan Small Finance Bank||01st Feb 2017||
|ESAF Small Finance Bank||17th March 2017||Thrissur, Kerala|
|AU Small Finance Bank||19th April 2017||Jaipur, Rajasthan|
|Fincare Small Finance Bank||21st July 2017||Bengaluru, Karnataka|
|Northeast Small Finance Bank||17th Oct 2017||Guwahati, Assam|
|Jana Small Finance Bank||29th March 2018||Bengaluru, Karnataka|
|Shivalik Small Finance Bank||26th April 2021||Noida, UP|
Salient Features of Small Finance Bank
Some of the Salient Features of Small Finance Banks are as follows:
- Small Finance Bank can accept any Deposits (Saving, Current, Fixed Deposit, Recurring deposits) like any other Commercial Bank.
- It can provide loans to the unorganized , small enterprises , Low-income households etc.
Conditions in setting up Small Finance Bank
Some of the Condition required in Setting up Small Finance Bank
- This Bank do not provide loans to big businesses or industry.
- Every Small Finance Bank must have the word “Small Finance Bank” in its name
- This Bank cannot open their branches for performing Non-Banking Financial Activities.
- Small Finance Bank can provide financial activities like Pension Products, Mutual Funds, Insurance Products etc. only after the approval taken from RBI.
- A Small Finance Bank can transform into Bank only after approval from RBI.
- Small Finance Bank must set up its 25% Branches on the Unbanked Rural areas (Where there is no bank)
RBI Guidelines for Small Finance Bank
RBI has issued several Guidelines for Small Finance Bank to operate. Below are the guidelines:
- Small Finance Bank must be enrolled as a Public Limited company under the Company’s Act 2013. This must be Authorized under Section 22 of the Banking Regulations Act 1949. It is also Regulated by the terms of Reserve Bank of India 1934.
- RBI has also Introduced the concept of On tap Licensing , It means that Any Body who is eligible for becoming Small Finance Bank can apply for License throughout the year.
- The Minimum Capital or net worth must be Rs. 200 crores but for Urban Co-operative Bank who is converting into Small Finance Bank , their minimum capital should be Rs. 100 crore and they have to increase their business up to Rs. 200 crores within 5 years of the establishment of the Small Finance Bank.
- Small Finance Bank will be given the Status of Scheduled Bank Immediately it started its operation.
- RBI have given the permission of opening Banking Outlets, Once the Small Finance Bank started its operation.
- The Promotors or Founder of the Small Finance Bank must have minimum contribution of 40% capital up to 05 years which can be gradually decreased to 26% after 12 years.
- The Small Finance Bank must maintain certain Cash Reserve Ratio (Minimum amount of Cash is to be deposited as reserved) and Statutory Liquid Ratio (Minimum percentage of deposit must be in the form of Cash, Gold, Securities etc before offering Loan to the customers)
- The Small Finance Bank must provide 75% of Loan to the Priority Sector.
- Once the Small Finance Bank reaches the Market Value of Rs. 500 crores then it must have to enlist in the Stock Market within 3 years of the Market Capitalization.
- Foreign Direct Investment has been kept for Maximum of 74% for Small Finance Banks. It is modified from time to time.
- The Small Finance Bank have to provide 50% of the Loan Amount up to Rs. 25 Lac. It means If the Overall Loan Amount is Rs. 100 crores then Rs. 50 crores should be given to those lenders whose Loan amount is Rs. 25 Lakhs or Less than Rs. 25 Lakhs.
- The Small Finance Bank and distribute Loan Size of 10% to Single and 15% for Groups of Borrower. It means that If the Bank have to distribute loan of Rs. 50 Lacs today then , he will give Maximum Loan Amount of Rs. 5 Lac for Individual and Rs.7.50 Lac for Groups of Borrower
Small Finance Bank is opened for large population of the country who has low household income, Small and Medium Enterprises, Small Farmers, working in an Unorganized Sector so that they can also include themselves in the financial activity or they can be added in the banking sector. The major purpose is to provide them loan so that they can also solve their professional & personal purpose.