Small finance banks in India
Small finance banks are a type of niche banks in India. Banks with a small finance bank license can provide basic banking service of acceptance of deposits and lending. The aim behind these is to provide financial inclusion to sections of the economy not being served by other banks, such as small business units, small and marginal farmers, micro and small industries and unorganised sector entities.
History of Small finance banks in India
- On 17 July 2014, the Reserve Bank of India (RBI) released the draft guidelines for small finance banks, seeking comments for interested entities and the general public. The final guidelines were released by RBI on 27 November 2014. Interested parties were required to submit applications before 16 January 2015.
- In February 2015, RBI released the list of entities which had applied for a small finance bank license. There were 72 applicants. It was announced that an external advisory committee headed by Usha Thorat would evaluate the license applications.
- On 17 September 2015, The Reserve Bank of India (RBI) announced that it had given provisional licenses to ten entities who would have to convert into small finance banks within one year. Eight out of these ten entities were microfinance NBFCs, reiterating RBIs agenda of financial inclusion.
- Capital Small Finance Bank was the first small finance bank to begin operations, opening with 47 branches on 24 April 2016.
- On 26 April, 2021, under Section 22 (1) of the Banking Regulation Act, 1949, the RBI has issued an in-principle approval to Uttar Pradesh based Shivalik Mercantile Co-operative Bank Limited for transition into a small finance bank. Thus, it has become India’s first urban co-operative bank (UCB) to transition to a Small Finance Bank (SFB).
The small finance banks shall be registered as a public limited company under the Companies Act, 2013. It will be licensed under Section 22 of the Banking Regulation Act, 1949. The Small Finance Banks in India are governed by the provisions of the:
• Banking Regulation Act, 1949.
• Reserve Bank of India Act, 1934.
• Foreign Exchange Management Act, 1999
• Deposit Insurance and Credit Guarantee Corporation Act, 1961
• Payments and Settlements Act,2007
• Credit Information Companies (Regulation) Act,2005
The small finance banks will be given scheduled bank status once they commence their operations, and found suitable as per Section 42 (6) (a) of the Reserve Bank of India Act, 1934.
The functions of the list of small finance banks in India are -:
- Acceptance of all type of deposits and lending loans to unbanked areas of our country.
- Maintenance of Cash Reserve Ratio and Statutory Liquidity Ratio.
- The basic objective for the setting up of SFBs are to provide credit facilities to small business units, small farmers, micro and small industries, and unorganized sectors and reform to improve financial inclusion in the country.
- It also provides loans to the priority sector and motivates people to save their excess funds.
- SFBs can provide financial services like mutual funds, insurance, and pension products but with the prior approval of RBI.
The minimum paid-up equity capital for small finance banks shall be Rs. 200 crore. The promoter’s minimum initial contribution to the paid-up equity capital of such small finance bank shall at least be 40 percent and gradually brought down to 26 percent within 12 years from the date of commencement of business of the bank. The foreign shareholding in the small finance bank would be as per the Foreign Direct Investment (FDI) policy for private sector banks as amended from time to time.
Eligible promoters
- Resident individuals/professionals with 10 years of experience in banking and finance; and Companies and Societies owned and controlled by residents will be eligible as promoters 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.
- Promoter/promoter groups should be ‘fit and proper’ with a similar record of professional experience or of running their businesses for at least a period of five years in order to be eligible to promote small finance banks.
List of small finance bank
Name | Founded year | Headquarters |
Au Small Finance Bank Limited | 1996 | Jaipur |
Capital Small Finance Bank Limited | 2000 | Jalandhar |
Equitas Small Finance Bank Limited | 2016 | Chennai |
Suryoday Small Finance Bank Limited | 2008 | Mumbai |
Ujjivan Small Finance Bank Limited | 2017 | Bengaluru |
Utkarsh Small Finance Bank Limited | 2009 | Delhi |
ESAF Small Finance Bank Limited | 2017 | Kerala |
Fincare Small Finance Bank Limited | 1995 | Ahmedabad |
Jana Small Finance Bank Limited | 2018 | Bangalore |
North East Small Finance Bank Limited | 2016 | Guwahati |
Shivalik Small Finance Bank Limited | 2010 | Saharanpur, Uttar Pradesh |
Unity Small Finance Bank Limited | 2021 | New Delhi |
AU Small Finance Bank is the largest small finance bank in India.
What is difference between small finance bank and bank?
The list of small finance banks in India provides services to small business units, marginal farmers, unorganized sector entities, micro, and small industries through low-cost operations. But the Scheduled Commercial banks provide banking services to every section.
