In India, we have two broad categories for the classification of banks, some are universal commercial banks while the remaining are differential banks. SBI, PNB, ICICI, HDFC etc are universal commercial banks while Regional Rural Banks, Payment Banks, small finance banks, local area banks come within the category of differential banks. This broad classification is done on the basis of geographical factors and customer base to which bank can provide its services.

Small Finance Banks

The Setting up of Small Finance Banks was recommended by Raghuram Rajan Committee on financial sector reforms while External Advisory Committee for evaluating Applications of Small Finance Banks was headed by Usha Thorat. Small finance banks provide basic banking services of taking the deposit from the public and forwarding loans. These banks were set up with a motive to improve financial inclusion and to provide banking services to sectors which are not served by other banks like small and marginal farmers, small business firms, micro and small industries and unorganised sector.

Important points related to Small Finance Banks

  • The minimum capital required to set up a small finance bank is 100 crore rupees.
  • Individuals/Professional with up to 10 years of experience in finance, local area banks, Non-Banking Financial Companies, micro-finance institutions is eligible to set up Small Finance Banks.
  • Small Finance Banks have to give 75 per cent of their loans in Priority Sector Lending like Regional Rural Banks.
  • These banks must provide 50 per cent of their loans in an amount less than or equal to 25 lakh rupees.
  • Small Finance Banks have to maintain Cash Reserve Ratio (CRR) and Statutory Liquidity Ratio (SLR) as per the RBI norms.
  • The Foreign shareholding in small finance banks is on par with FDI (Foreign Direct Investment) rules for private sector banks. It is 49 per cent with automatic routine and up to 74 with government approval.
  • Initial contributions of promotors of Small Financial Banks should be at least 40 per cent of initial Paid-up Capital and it should be gradually brought down to 26 per cent within 12 years from the date of starting the business.
  • Cannot float subsidiaries and extend large loans.

Can a Small finance bank be converted to Universal Bank?

Yes. If a Small Finance Bank aspires to transit into a Universal commercial bank, it will not be automatic. It will subject to minimum Paid-up capital requirements/net worth requirement as applicable to commercial banks. It should have a satisfactory track record while working as a Small Finance Bank.

Small Finance Banks in India

Currently, ten small finance banks are operating in the country. Out of which Capital Local Area Bank was the first to start operations while Jana small finance bank is the latest one to start operating as a small finance bank. Let’s take a look at them:

(1). Au Small Finance Bank

  • Headquarter – Jaipur
  • Head – Sanjay Agarwal
  • Tagline – “Chalo Aage Badhe”.

(2). Capital Small Finance Bank

  • Headquarter – Jalandhar (Punjab)
  • Head – Sarvjit Singh Samra
  • Tagline – “Vishwas se Vikas tak”.

(3). Equitas Small Finance Bank

  • Headquarter – Chennai
  • Head – P.N. Vasudevan
  • Tagline – “It’s fun banking”.

(4). ESAF Small Finance Bank

  • Headquarter – Thrissur, Kerala
  • Head – R. Prabha
  • Tagline – “Joy of Banking”.

(5). Fincare Small Finance Bank

  • Headquarter – Bengaluru
  • Head – Rajeev Yadav
  • Tagline – “Banking on more”.

(6). Jana Small Finance Bank

  • Headquarter – Bengaluru
  • Head – Ajay Kanwal
  • Tagline – “Paise ki Kadar”.

(7). North East Small Finance Bank

  • Headquarter – Guwahati
  • Head – Rupali Kalita
  • Tagline – “Your doorstep banker”.

(8). Suryoday Small Finance Bank

  • Headquarter – Navi Mumbai
  • Head – R Baskar Bapu
  • Tagline – “A Bank of Smiles”.

(9). Ujjivan Small Finance Bank

  • Headquarter – Bengaluru
  • Head – Samit Ghosh
  • Tagline – “Bhrosa aapke Bhrose par”.

(10). Utkarsh Small Finance Bank

  • Headquarter – Varanasi
  • Head – Govind Singh
  • Tagline – “Aapki Umeed ka khaata”.

Click here to read the Detailed overview of Indian Banking Sector

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