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All about Small Finance Bank

Introduction: Small Finance banks and Payments bank are differentiated banks. Differentiated banks are those whose scope of activities are subset of those allowed for universal banks.

Objectives: The objectives of setting up of small finance banks will be to further financial inclusion by

• provision of savings vehicles, and
• supply of credit to small business units; small and marginal farmers; micro and small industries; and other unorganised sector entities, through high technology-low cost operations.

Scope of activities :

• Acceptance of deposits and lending to unserved and underserved sections including small business units, small and marginal farmers, micro and small industries and unorganised sector entities.
• There will not be any restriction in the area of operations of small finance banks.

Eligible promoters:

• Resident individuals/professionals with 10 years of experience in banking and finance
• Existing NBFCs, MFIs and LABs that are owned and controlled by residents can also opt for conversion into small finance banks after complying with all legal and regulatory requirements.
• (Who cannot) Large public sector entities and industrial and business houses, including from NBFCs promoted by them cannot open Small Finance Bank.
• Promoter/promoter groups should be ‘fit and proper’ and running their business for at least a period of five years.

Capital: The minimum paid-up equity capital for small finance banks shall be Rs. 200 crore.

FDI Limit: 74% (As of Private Banks)

Promoter’s contribution: The promoter’s minimum initial contribution to the paid-up equity capital of such small finance bank shall at least be 40 per cent and gradually brought down to 26 per cent within 12 years from the date of commencement of business of the bank.

CRR and SLR: As applicable for Commercial Banks.

Loans and Advances:

• SFBs must extend 75 per cent of its Adjusted Net Bank Credit (ANBC) to priority sector lending (PSL).
• At least 50 per cent of its loan portfolio should constitute loans and advances of upto Rs. 25 lakh.
• The maximum loan size and investment limit exposure to a single and group obligor would be restricted to 10 per cent and 15 per cent of its capital funds respectively.

Registration, licensing and regulations:

• Registered: Under the Companies Act, 2013 (as a public limited company)
• Licensed: Under Section 22 of the Banking Regulation Act, 1949
• Regulation: Banking Regulation Act, 1949; Reserve Bank of India Act, 1934; Foreign Exchange Management Act, 1999; Payment and Settlement Systems Act, 2007; Credit Information Companies (Regulation) Act, 2005; Deposit Insurance and Credit Guarantee Corporation Act, 1961;

Voting rights and transfer/acquisition of shares: Any shareholder’s voting rights in private sector banks are capped at 10 per cent. This limit can be raised to 26 per cent in a phased manner by the RBI.

One Liners:

• The small finance bank cannot be a Business Correspondent (BC) for another bank. However, it can have its own BC network.
• The small finance bank will be required to use the words “Small Finance Bank” in its name in order to differentiate it from other banks.
• If a promoter setting up a small finance bank desires to set up a Payments Bank, it should set up both types of banks under a Non-Operative Financial Holding Company (NOFHC) structure.
• It shall be required to maintain a minimum capital adequacy ratio of 15 per cent of its risk weighted assets (RWA) on a continuous basis

List of functional Small Finance Banks in India

Capital Small Finance Bank was the first small finance bank to begin operations. Shivalik Mercantile Co-operative Bank Limited is India’s first urban co-operative bank (UCB) to transition to a Small Finance Bank (SFB). 

S.No	Bank Name	Headquarters	Promoter
1	Ujjivan Small Finance Bank	Bangalore	Ujjivan Financial Services Pvt Ltd
2	Jana Small Finance Bank	Bangalore	Janalakshmi Financial Services Pvt Ltd
3	Equitas Small Finance Bank	Chennai	Equitas Holdings Pvt Ltd
4	AU Small Finance Bank	Jaipur	Au Financiers India Ltd
5	Capital Small Finance Bank	Jalandhar	Capital Local Area Bank Ltd
6	Fincare Small Finance Bank	Bangalore	Disha Microfin Pvt Ltd
7	ESAF Small Finance Bank	Reg: Chennai, Corp: Thrissur	ESAF Microfinance
8	North East Small Finance Bank	Guwahati	RGVN North East Microfinance Ltd
9	Suryoday Small Finance Bank	Navi Mumbai	Suryoday Microfinance Pvt Ltd
10	Utkarsh Small Finance Bank	Varanasi	Utkarsh Microfinance Pvt Ltd
11	Shivalik Small Finance Bank	Saharanpur, Uttar Pradesh	Shivalik Mercantile Co-operative Bank Limited
12	Unity Small Finance Bank Limited	Mumbai	Centrum Financial Services Limited and Resilient Innovations Private Ltd (BharatPe)