Small finance banks are established as public limited companies in the private sector under the Companies Act, 2013 and can be promoted either by individuals, corporate, trusts or societies.
The aim of these banks is to provide financial inclusion to sections of the economy not being served by other banks, such as small business units, small and marginal farmers, micro and small industries and unorganised sector entities.
Small finance banks can provide basic banking service of acceptance of deposits and lending.
The small finance banks will be subject to Cash Reserve Ratio (CRR) and Statutory Liquidity Ratio (SLR).
SFBs will be given scheduled bank status once they commence their operations, and found suitable as per Section 42 of the Reserve Bank of India Act, 1934.
RegulationSmall Finance Banks are governed by - 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 and other Guidelines/Instructions issued by Reserve Bank of India (RBI) and other regulators from time to time.
EligibilityTo be eligible to apply for a small finance bank licence:
1) Resident individuals/professionals must have at least 10 years of experience in the banking and finance sector at senior levels.
2) Groups, companies, existing payments banks, non-banking finance companies, microfinance companies, local area banks and cooperative banks owned and controlled by residents applying for these licenses must have at least five years of successful track record.
3) It needs to open at least 25 per cent of its banking outlets in unbanked rural centres.
4) 75 per cent of its net credits should be in priority sector lending and 50 per cent of the loans in its portfolio must in 25 lakh range.
5) Joint ventures by different promoter groups for the purpose of setting up small finance banks are not permitted.
6) Primary (Urban) Co-operative Banks (UCBs), desirous of voluntarily converting into small finance banks, may voluntarily transform from Urban Co-operative Bank into a Small Finance Bank.
7) The minimum net worth of such small finance banks shall be Rs. 100 crore from the date of commencement of business. However, they will have to increase their minimum net worth to Rs. 200 crore within five years from the date of commencement of business.
Existing non-banking financial companies (NBFC), microfinance institutions (MFI) and local area banks (LAB) can also apply to become small finance banks.