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About The Small Finance Banks


The Reserve Bank of India (RBI)-appointed director, recently resigned from the board of Ujjivan Small Finance Bank (SFB).


GS III: Indian Economy

Dimensions of the Article:

  1. About Small Finance Banks (SFBs)
  2. 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

March 2024