Small finance bank

Context: Recently, Small finance bank (SFB) campaigns were launched.The initiative aims to showcase the achievements of Small Finance Banks (SFBs) in terms of their business models to various stakeholders.

About Small Finance Bank (SFB):

Small Finance Banks are financial institutions dedicated to providing financial services in regions that are underserved and unbanked.

• They are incorporated as public limited companies under the Companies Act, 2013.
• The minimum paid-up capital required is ₹100 crore.
• Capital adequacy ratio must be 15% of risk-weighted assets.
• Foreign shareholding is capped at 74% of paid capital.
• Foreign Portfolio Investment (FPIs) is limited to 24%.
• They need to fulfill a priority sector lending requirement of 75% of total adjusted net bank credit.

Eligibility Criteria:

• Resident individuals/professionals with at least 10 years of banking and finance experience can establish Small Finance Banks with RBI approval.
• Existing Non-Banking Finance Companies (NBFCs), Micro Finance Institutions (MFIs), and Local Area Banks (LABs) in the private sector are eligible.
• Indian residents with a successful track record of running businesses for a minimum of five years must be in control.
• Joint ventures for setting up Small Finance Banks are not allowed, as per revised Priority Sector Lending Guidelines.

Functions:

• SFBs are authorized to accept small deposits and grant loans.
• They can distribute mutual funds, insurance products, and other simple third-party financial products.
• 75% of their total adjusted net bank credit must be allocated to the priority sector.
• The maximum loan size is limited to 10% of capital funds for a single borrower and 15% for a group.
• A minimum of 50% of loans should be up to ₹25 lakhs.