Small Finance Banks

  • Category
    Economy
  • Published
    11th Apr, 2019

Context

  • Data from the Reserve Bank of India (RBI) show that the small finance banks, in total, saw their deposits grow 31.6% in the third quarter (ended December) of this financial year, compared with the second quarter. 
  • The phenomenal growth of small finance banks has come on a very small base which is why bigger banks and NBFCs don’t see them as competition yet.

About

The small finance bank will primarily undertake basic banking activities of acceptance of deposits and lending to unserved and underserved sections including small business units, small and marginal farmers, micro and small industries and unorganised sector entities.

Advantages-

  • Take small deposits and disburse loans.
  • Distribute mutual funds, insurance products and other simple third-party financial products.
  • Lend 75% of their total adjusted net bank credit to priority sector.
  • Maximum loan size would be 10% of capital funds to single borrower, 15% to a group.
  • Minimum 50% of loans should be up to 25 lakhs.

Guidelines:

  • Promoter must contribute minimum 40% equity capital and should be brought down to 30% in 10 years.
  • Minimum paid-up capital would be Rs 100 cr.
  • Capital adequacy ratio should be 15% of risk weighted assets, Tier-I should be 7.5%.
  • Foreign shareholding capped at 74% of paid capital, FPIs cannot hold more than 24%.
  • Priority sector lending requirement of 75% of total adjusted net bank credit.
  • 50% of loans must be up to Rs 25 lakh.
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