Overview

The Small Finance Bank shall be registered as a public limited company under the Companies Act, 2013 and shall be licensed under Section 22 of the Banking Regulation Act, 1949 and regulated by the provisions of the Banking Regulation Act, 1949 and the Reserve Bank. Will be done. India Act, 1934 and other relevant laws and accompanying directives / regulations and other guidelines / directives issued by RBI and other regulators from time to time.

Reserve Bank of India wants to do rural service & amp; Semi-urban areas such as small businesses, unorganized sector, low income households, farmers and migrant workforce through small finance bank.

Small finance banks are a type of niche bank. These types of banks carry small finance bank licenses, which provide basic banking services related to deposits and loan approvals. Their main objective is to provide financial services to those sections of the economy which are not serviced by other banks, such as small business units, small and marginal farmers, micro and small scale industries and unorganized sector units.

Small finance banks make money by collecting money from current account & amp; Saving Account Depositors, Fixed Depositors, Commercial Papers, Wholesale Deposits, Refinancing etc. On savings accounts they offer interest rates between 6 and 7%, subject to conditions. At around 9% of fixed deposits, interest is offered. SFB offers two types of products such as group loans & amp; Personal loan. These products can further be divided into agriculture, education, home improvement, home purchase, livestock loans, etc.

SFB does not get a guarantee against the loan given. In group loans, they are offered on joint liability. If no member of the group pays, the entire group is held accountable for the same.

Small finance banks require prior approval from RBI to open bank branches. Universal banks do not require such permission to roll out a branch in rural areas.

Small banks are required to extend 75% of their adjusted net bank credit (ANBC) to areas classified under priority sector lending (PSL) by the RBI. Agriculture, small scale industries, small business / service enterprises, microcredit, education loans.

OBJECTIVE

• Its primary purpose is to provide an institutional mechanism for promoting rural & semi-urban savings and also providing credit for viable economic activities in local areas and provision of savings vehicles primarily to unsaved and underserved sections of the population, and
• Supply of credit to small business units; small and marginal farmers; micro and small industries; and other unorganized sector entities, through high technology-low cost operations.

RULES & REGULATIONS

• Small finance bank will undertake basic banking services of acceptance of deposits and lending to unsaved and underserved sections.
• It will provide banking facilities to boost saving habits.
•  It will mainly target small business units, marginal farmers and unorganized sector entities through high technology-low cost operations.
• They are established as a public limited company in the private sector which is promoted either by individuals, corporate, trust or societies.
• They are governed by the provisions of Reserve Bank of India act 1934, Banking Regulation act 1949 and other relevant statutes.
• Small finance banks are considered as non-scheduled banks and they are not allowed to borrow funds from the Reserve Bank of India like other scheduled banks.

RBI has clarified that SFBs can convert themselves into universal banks through the transition would not be automatic and it will require regulator's approval.

Required minimum capital

Main Finance Faced by Small Finance Bank?

Maintaining an ideal technology platform is not easy, which should benefit both customers in terms of ease of transaction and cost reduction to the bank. Acting as the first MFIs (microfinance institutions), small financial banks have not previously handled deposits. They are required to invest in infrastructure, which enables deposits through correspondent networks, ATM networks and the establishment of physical branch networks to partner with banks. Managing capital adequacy ratios, cash reserve ratios (CRRs) and statutory liquidity ratios (SLRs) will be a significant burden that will result in lower income until the SFB develops an adequate depositary base.