Small Finance Banks
A Small Finance Bank is a financial institution that caters to small business units, micro and small enterprises, marginal farmers and the unorganized sector. Its basic banking activities are similar to those of commercial banks, and it has the same regulatory requirements as a commercial bank. The RBI has issued guidelines on Small Finance Banks in November 2014, and as of January 2021, there are 10 such institutions operating in India. A SFB has the mandate to foster financial inclusion by providing loans to those who need them most.
A small finance bank must be run by a resident, and residents must have at least 10 years of experience in the banking or finance industry. The bank must be privately owned and controlled and have a successful track record of at least five years. The minimum capital investment is Rs. 100. There are no minimum requirements for the capital requirement, and all activities must be conducted by a qualified professional. Once the bank is established and has been operating for three years, it will no longer require an RBI approval and will be governed by the existing regulatory norms for scheduled commercial banks.
To start a small finance bank, you will need to be a resident of the country. The individual or company must be a citizen of the country. It must have 10 years of experience in the finance or banking industry. The bank must be privately owned and controlled by residents, and it must have a track record of at least five years. To get started, you can visit the RBI website here. It will also give you more information about the SFBs.
A SFB is a public limited company that is licensed by the Reserve Bank of India. A SFB must provide a savings vehicle for depositors, as well as a source of credit for small businesses, farms, and micro and small industries. It must have a minimum paid-up equity capital of Rs 100 crore. The promoter’s contribution is limited to 40% of the paid-up capital of the SFB.
A SFB can be established by a resident or a non-resident. A SFB needs to invest in infrastructure to accept deposits. It may partner with commercial banks and work closely with the government to secure its regulatory framework. It should have a substantial depositor base. As a SFB, it can partner with commercial banks and provide services to both. But it should not be considered a substitute for a traditional bank.
These banks will mainly provide basic banking services, and will not engage in other financial activities. The main objective of a SFB is to extend financial services to people living in rural or semi-rural areas. By law, small finance banks are required to have a minimum paid-up equity capital of INR 100 crore and must carry the words “SFB.” Its name, however, does not matter, as the bank will operate with the same regulatory framework as a conventional bank.