Overview
Small Finance Banks (SFBs) are specialised banks licensed by the RBI to give core banking services to people the larger banks do not reach. They are a type of differentiated bank, built around set objectives and customer groups rather than universal banking.
Key facts
- Status: public limited companies under the Companies Act, 2013; licensed under Section 22 of the Banking Regulation Act, 1949.
- Activities: accept deposits and lend, with stress on small and marginal farmers, micro and small enterprises and the unorganised sector.
- Differentiated banks: idea mooted by the Nachiket Mor Committee (2013); two types: SFBs and Payment Banks.
- Services: all deposit kinds (CASA, FD, RD); loans with small tickets up to ₹25 lakh; non-risk products like mutual funds, insurance and pensions of third parties.
Objectives
- Take banking to far-off rural and semi-urban villages.
- Offer saving and lending facilities to small farmers and micro enterprises.
- Reach unorganised and informal segments to promote financial inclusion.
- Act as an alternative to large banks in rural areas and support MSMEs.
Regulatory framework
| Aspect | Provision |
|---|
| Registration | Companies Act, 2013 |
| Licence | Section 22, Banking Regulation Act, 1949 |
| Supervision | RBI, under the BR Act, 1949 and RBI Act, 1934 |
| Capital adequacy | CAR of 15% on a continuing basis |
| Net worth | ₹100 crore at the start; ₹200 crore within 5 years |
| Rural presence | 25% of branches in rural areas |
| Lending | 50% of loans to the MSME sector |
SFBs versus Payment Banks
| Criteria | SFB | Payment Bank |
|---|
| Who can apply | NBFCs, MFIs, Local Area Banks, societies, private companies, resident individuals | Telecom firms, supermarkets, public sector entities, PPI providers, NBFCs, resident individuals |
| Minimum capital | ₹100 crore, to ₹200 crore in 5 years | ₹100 crore |
| FDI | Up to 74% | Up to 74% |
| Deposits | CASA, FD, RD; no limit | Demand deposits only; up to ₹1 lakh |
| Deposit insurance | DICGC cover | DICGC cover |
| Lending | Yes; at least 50% of loans up to ₹25 lakh | No |
| Cards | Debit and credit | Debit only |
| CRR / SLR | Both apply | CRR applies; SLR 75% of NDTL |
| Basel norms | 15% of RWAs | 15% of RWAs |
| Priority sector lending | Mandatory; 75% of ANBC | Not applicable |
Significance
- Financial deepening: bringing millions into formal banking.
- Entrepreneurship: affordable credit for MSMEs, artisans and agripreneurs.
- Banking habit: better savings and investment among low-income groups.
- Innovation and competition: new digital solutions and sharper competition.
- Women and SHGs: services designed for women entrepreneurs and Self-Help Groups.
Examples
| SFB | Headquarters | Origin |
|---|
| Ujjivan SFB | Bengaluru | Ujjivan Financial Services |
| AU SFB | Jaipur | AU Financiers (India) Ltd |
| Jana SFB | Bengaluru | Jana Lakshmi Financial Services |
| Utkarsh SFB | Varanasi | Utkarsh Micro Finance Ltd |
| Equitas SFB | Chennai | Equitas Holdings Ltd |
Challenges
- Narrower reach than large commercial banks.
- Higher operating cost in rural and semi-urban areas.
- Dual compliance under company law and RBI rules.
- Scalability limits from a focused customer base.
Quick FAQs
- Deposits are insured up to ₹5 lakh under DICGC.
- AU SFB and Ujjivan SFB are listed on Indian stock exchanges.
- SFBs can operate PAN-India but must keep a 25% rural branch presence and follow lending norms.
Exam angle
- Committee behind differentiated banks: Nachiket Mor (2013).
- CAR 15%; rural branches 25%; MSME loans 50%; PSL target 75% of ANBC.
- Only SFBs can issue credit cards and lend; Payment Banks cannot lend.