Small Finance Banks (SFBs) are specialized banks in India aimed at providing basic banking services to underserved sections of the population, including small business units, small and marginal farmers, micro and small industries, and entities in the unorganized sector. Small Finance Banks play a crucial role in expanding financial access to marginalized sectors, embodying a targeted approach to banking in India’s diverse economic landscape.
Overview
- Services: SFBs are licensed to accept deposits and provide credit, focusing on financial inclusion.
- Promoters: Can be promoted by individuals, corporates, trusts, or societies, and established as public limited companies under the Companies Act, 2013.
- Regulation: Governed by the Reserve Bank of India Act, 1934; Banking Regulation Act, 1949; and other relevant statutes.
- Objective: To promote rural and semi-urban savings and provide credit for viable economic activities in local areas.
Regulatory Summary
- Capital Requirement: Minimum of ₹200 crore; promoters must hold at least 40% initially, reducing to 26% within 12 years.
- Licensing: Under Section 22 of the Banking Regulation Act, 1949; must achieve scheduled bank status upon operation.
- Priority Sector Lending: 75% of net credits must be in priority sector lending, with 50% of loans under ₹25 lakh.
- Branch Expansion: Initial branch plans require RBI approval, with at least 25% in unbanked rural areas.
- Naming: Must include “Small Finance Bank” in their name for differentiation.
Guidelines and Operations
- Scope: Primarily engage in basic banking activities; can offer non-risk sharing financial services like mutual funds and insurance with RBI approval.
- Technology: Must implement high-tech, low-cost operations from inception, complying with RBI standards.
- Governance: Board must have a majority of independent directors; comply with RBI’s corporate governance guidelines.
Transition and History
- Conversion: Existing NBFCs, MFIs, and LABs meeting criteria can convert to SFBs; need minimum net worth of ₹100 crore and compliance with regulatory requirements.
- History: Draft guidelines released in July 2014; final guidelines in November 2014. First licenses issued in September 2015, with operationalization starting in April 2016.
Challenges and Future
- Financial Inclusion: Aimed at bridging banking gaps in underbanked regions.
- Regulatory Compliance: Stringent norms ensure stability and reliability in operations.
- Market Expansion: Potential for wider geographic reach after initial operational stabilization.
| Bank name | Established | Headquarters |
| AU Small Finance Bank | 2017 | Jaipur, Rajasthan |
| Capital Small Finance Bank | 2016 | Jalandhar, Punjab |
| Equitas Small Finance Bank | 2016 | Chennai, Tamil Nadu |
| ESAF Small Finance Bank | 2017 | Thrissur, Kerala |
| Jana Small Finance Bank | 2018 | Bangalore, Karnataka |
| North East Small Finance Bank | 2017 | Guwahati, Assam |
| Shivalik Small Finance Bank | 2021 | Saharanpur, Uttar Pradesh |
| Suryoday Small Finance Bank | 2017 | Navi Mumbai, Maharashtra |
| Ujjivan Small Finance Bank | 2017 | Bangalore, Karnataka |
| Unity Small Finance Bank | 2021 | Mumbai, Maharashtra |
| Utkarsh Small Finance Bank | 2018 | Varanasi, Uttar Pradesh |