Small Finance Bank – Features & Regulation In India?


Small finance banks are a type of niche banks in India. Banks with a small finance bank license can provide basic banking service of acceptance of deposits and lending. The aim behind these 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.

know about small finance bank
What is Small Finance Bank in India?

The Small Finance Bank & Its History:

On 17 July 2014, the Reserve Bank of India (RBI) released the draft guidelines for small finance banks, seeking comments for interested entities and the general public. The final guidelines were released by RBI on 27 November 2014. Interested parties were required to submit applications before 16 January 2015.
In February 2015, RBI released the list of entities which had applied for a small finance bank license. There were 72 applicants. It was announced that an external advisory committee headed by Usha Thorat would evaluate the license applications.
On 17 September 2015, The Reserve Bank of India (RBI) announced that it had given provisional licenses to ten entities who would have to convert into small finance banks within one year. Eight out of these ten entities were microfinance NBFCs, reiterating RBIs agenda of financial inclusion. Capital Small Finance Bank was the first small finance bank to begin operations, opening with 47 branches on 24 April 2016. The names of the licensees are as below:

How many small finance banks in India?

According to wikipedia, out of 10, there is 8 small finance bank are functioning in India.

Original licensee/promoter Commenced Bank name Headquarters
Ujjivan Financial Services Pvt Ltd 1 February 2017 Ujjivan Small Finance Bank Bangalore
Janalakshmi Financial Services Pvt Ltd 29 March 2018 Jana Small Finance Bank Bangalore
Equitas Holdings Pvt Ltd 5 September 2016 Equitas Small Finance Bank Chennai
Au Financiers India Ltd 19 April 2017 AU Small Finance Bank Jaipur
Capital Local Area Bank Ltd 24 April 2016 Capital Small Finance Bank Jalandhar
Disha Microfin Pvt Ltd 21 July 2017 Fincare Small Finance Bank Bangalore
ESAF Microfinance 17 March 2017 ESAF Small Finance Bank Reg: Chennai, Corp: Thrissur
RGVN North East Microfinance Ltd 17 October 2017 North East Small Finance Bank Guwahati
Suryoday Microfinance Pvt Ltd 23 January 2017 Suryoday Small Finance Bank Navi Mumbai
Utkarsh Microfinance Pvt Ltd 23 January 2017 Utkarsh Small Finance Bank Varanasi

What is the Regulation of Small Finance Bank?

  • Existing non-banking financial companies (NBFC), microfinance institutions (MFI) and local area banks (LAB) can apply to become small finance banks.
  • They can be promoted either by individuals, corporations, trusts or societies.
  • They are established as public limited companies in the private sector under the Companies Act, 1956.
  • They are governed by the provisions of Reserve Bank of India Act, 1934, Banking Regulation Act, 1949 and other relevant statutes.
  • The banks will not be restricted to any region.
  • They were set up with the twin objectives of providing an institutional mechanism for promoting rural and semi-urban savings and for providing credit for viable economic activities in the local areas.
  • 75% of its net credits should be in priority sector lending and 50% of the loans in its portfolio must in ₹25 lakh (US$38,000) range.
  • The firms must have a capital of at least ₹100 crore (US$15 million).
  • The promoters should have 10 years’ experience in banking and finance. The promoters stake in the paid-up equity capital will be at least 40% initially but must be brought down to 26% in 12 years. Joint ventures are not permitted. The foreign shareholding will be allowed in these banks as per the rules for FDI in private banks in India.
  • At a net worth of ₹500 crore (US$77 million), the listing will be mandatory within three years. Small finance banks having a net worth of below ₹500 crore (US$77 million) could also get their shares listed voluntarily.

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