Small Finance Banks (SFBs) became public in India on September 16, 2015, when the Reserve Bank of India authorized the establishment of small financial institutions known as small finance banks in accordance with the Union Budget of 2014-2015.
About Small Finance Bank
Small Finance Banks are financial entities that aim to meet the financial requirements of the poor through traditional banking activities such as lending and deposit-taking. Tiny rural businesses, small and marginalized farmers, unorganized organizations, and micro and small industries are among them. Small financing banks were established with the goal of reaching out to the unbanked people in distant and underserved locations.
Small Finance Bank Characteristics
- These banks are required to open at least 25% of their branches in unbanked distant and rural areas.
- SFBs must have a minimum capital requirement of 100 Crore Rupees.
- The Small Finance Banks are required to obey the RBI’s norms and regulations. The CRR, or cash reserve ratio, and the STR, or statutory liquidity ratio, are two of these rules.
- Small Finance Banks can also engage in operations like as mutual fund distribution, insurance products, and pension products, but only with RBI clearance.
- SFBs can also engage in foreign exchange operations based on the demands of their customers.
What are the Products Offered by Small Finance Banks?
Small Finance Banks have a variety of products to provide.
- Small finance banks are all involved in basic lending and deposit activities, such as loans and deposits. The fact that SFBs are required to focus their products more on the priority sector, which includes facilitating funds to poor people for housing, lending for agriculture and related activities, funding for micro and small industries, and funding for weaker sections of society, makes these product different from others. The RBI regulates these directions, which enable Small Finance Banks to deal with the following products:
- Fixed and Recurring Deposits are available at all Small Finance Banks. The interest rates on Fixed Deposits and Recurring Deposits charged by these institutions are higher than those charged by normal banks. mAs a result, a Fixed Deposit from Small Finance Bank many earn you more money.
- Loans- Retail loan products such as personal, housing, and auto loans are handled by all Small Finance Banks. These banks must provide 75 percent of their Adjusted Net Profit to the priority sector. Furthermore, 50 percent of the loans must be for up to Rs. 25 lakh.
- Other Products- Small finance banks also deal in other products such as mutual fund distribution, pension and insurance products, foreign exchange, debit cards, savings and current account deposits, and foreign exchange.
Difference Between Small Finance Banks & Commercial Banks
Small finance banks fulfill many of the same functions as commercial banks, including accepting deposits, lending, and even non-risk-sharing financial activities like mutual funds and insurance. They are, however, distinct from other commercial banks. The following are some fundamental differences:
|Small Finance Banks||Commercial Banks|
|Small Finance Banks’ major goal is to promote and provide banking services to the underbanked and underprivileged segments of society, such as the poor and working-class, as well as small laborers and farmers.||Commercial banks, on the other hand, offer banking services to individuals from different sections of life.|
|The priority sector is expected to get 75% of the Small Finance Banks’ Adjusted Net Bank Credit.||Commercial banks are expected to allocate 40% of their Adjusted Net Bank Credit to priority sectors.|
|These banks operate on a small scale, catering to the needs of a tiny segment of the population by permitting a limited amount of borrowing.||Instead, these banks operate on a large scale and offer larger loan amounts to all segments of society depending on qualifying criteria.|
|The Reserve Bank of India grants Small Finance Banks the Differentiated Banks license, which ensures that the bank is designed to serve a certain segment of the population.||The Reserve Bank of India grants commercial banks the UniversalBanks license, which indicates that all banking services are provided under one roof to serve all segments of society.|
|These banks must have a minimum capital of 100 Crore Rupees||These banks must have a minimum capital of 500 Crore Rupees|
|Small finance banks include Ujjivan Small Finance Bank, Jana Small Finance Bank, and others.||All public and private sector banks, such as SBI, PNB, Axis Bank, ICICI Bank, and HDFC Bank, are examples of commercial banks.|
List of Top Small Finance Banks in India 2021
The table below shows the top Small Finance Banks in India.
|Bank Name||Headquarter||Tagline||MD/ CEO/ CMD||Non-Exe Chairman/Chairman|
|AU Small Finance Bank||Jaipur, Rajasthan||ChaloAageBadhe||Mr. Sanjay Aggarwal||Mr. Raj Vikash Verma|
|Equitas Small Finance Bank||Chennai||It’s Fun Banking||Mr. P N Vasudevan||Mr. Rangachary N|
|ESAF Small Finance Bank||Thrissur, Kerala||Joy Of Banking||Mr. Kadambelil Paul Thomas||Mr. P R Ravi Mohan|
|Fincare Small Finance Bank||Ahmedabad||A New Era in Smart Banking Begins||Mr. Rajeev Yadav||Mr. PramodKabra|
|Jana Lakshmi Small Finance Bank||Bengaluru||LikhoApniKahani||Mr. Ajay Kanwal||Mr. Ramesh Ramanathan|
|Capital Small Finance Bank (1st Small Finance Bank)||Jalandhar, Punjab||Vishwas Se VikasTak||Mr. Sarvjit Singh Samra||Mr. Madan Gopal Sharma|
|Ujjivan Small Finance Bank||Bengaluru||We believe in your belief||—-||Mr. BanavarAnantharamaiahPrabhakar|
|Utkarsh Small Finance Bank||Varanasi||AapkiUmeedKaKhata||Mr. Govind Singh||—|
|Suryoday Small Finance Bank||Navi Mumbai||A Bank Of Smile||Mr. BaskarBabu Ramachandran||Mr. Ramachandran Rajaraman|
|North East Small Finance Bank||Guwahati||Your Door Step Banker||Ms. RupaliKalita||—|
Small Finance Bank’s Major Challenges
- It is challenging to maintain an optimum technology platform that will benefit both clients in terms of transaction convenience and the bank in terms of cost savings.
- Previously, Small Finance Banks operated as MFIs (Microfinance Institutions), and they did not manage deposits.
- It is critical that they invest in infrastructure that allows deposits to be made through an ATM network and through partnerships with banks.
- Aspects to be managed include the capital adequacy ratio, cash reserve ratio (CRR), and statutory liquidity ratio (SLR). As a result, earnings will be lower until SFBs establish a large depositor base to manage.
Small Banks’ Eligibility Criteria
- Rs. 100 crores as a minimum paid-up capital
- Promoters must make a minimum initial contribution of more than 40%. (to be bought to 26 percent within 12 years of commencement)
- For private banks, foreign shareholding is allowed under the FDI policy.
- Commercial banks are subject to all prudential rules and laws.
- 75 percent of ANBC should be extended to PSL sectors.
- Loans and advances of up to 25 lakhs should account for at least 50% of its lending portfolio.
Small financing institutions – Objectives
- Its primary goal is to establish an institutional structure for encouraging savings in rural and semi-urban areas of society.
- Small business units, small and marginal farmers, micro and small industries, and other unorganized sectors benefit from it.
Customers of small finance banks have access to current and savings accounts. As a result, they are able to issue debit cards. These banks, however, are not permitted to offer credit cards under the RBI’s mandate.
Under the Banking Regulations Act of 1949, the Reserve Bank of India approves all small finance banks in India. These banks, like all other banks, are accustomed to following the RBI’s regulations and procedures.
Small finance banks, unlike commercial banks, offer fixed deposits. In order to recruit more customers, these banks frequently provide greater interest rates on FDs than other commercial banks because they are newer. These FDs are also equally safe and secure.
Small finance banks provide personal loans, housing loans, consumer loans, and auto loans, just like commercial banks.