The Reserve Bank of India (RBI)-appointed director, recently resigned from the board of Ujjivan Small Finance Bank (SFB).
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Dimensions of the Article:
- About Small Finance Banks (SFBs)
- RBI Guidelines on SFBs in India
About Small Finance Banks (SFBs):
- SFBs are specialized banks licensed by the Reserve Bank of India (RBI) to cater to the financial needs of low-income individuals and underserved communities.
- They provide financial services and products such as microfinance, micro-enterprise services, and basic banking services.
- The main objective of SFBs is to promote financial inclusion by offering access to financial products to segments of the population who are excluded from the traditional banking system.
- SFBs are registered as public limited companies under the Companies Act, 2013.
- The RBI introduced guidelines for SFBs in 2014 to regulate their operations.
Small Finance Banks are governed by the provisions of the:
- 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;
- Other relevant Statutes and the Directives, Prudential Regulations and other Guidelines/Instructions issued by Reserve Bank of India (RBI) and other regulators from time to time.
RBI Guidelines on SFBs in India:
- SFBs are granted scheduled bank status after becoming operational and meeting the requirements under Section 42 of the RBI Act, 1934.
- The primary focus of SFBs is to provide financial services to the unbanked and underbanked segments of the population.
- They are required to maintain a minimum Capital to Risk-Weighted Assets Ratio (CRAR) of 15%.
- SFBs must extend at least 75% of their Adjusted Net Bank Credit to Priority Sector Lending.
- They are required to open a minimum of 25% of their branches in unbanked rural areas.
- The minimum paid-up voting equity capital for small finance banks is set at Rs. 200 crore.
- SFBs must maintain at least 50% of their loan portfolio as microfinance and advances of up to Rs. 25,00,000.
- They need to comply with various prudential norms and regulations regarding income recognition, asset classification, and provisioning.
- SFBs are encouraged to adopt technology to enhance their operational efficiency and reach the target segments.
Source: India Today