Small Finance Bank License
Under Companies Act 2013,Small Finance Banks are registered as public limited company and are licensed under section 22 of the Banking Regulation,1949 and primarily governed by Banking Regulation Act,1949 and RBI Act,1934. Small Finance Banks were introduced with the purpose to serve rural and semi-urban areas like small businesses, unorganized areas, etc. They make money by collecting it from current and saving account depositors, fixed depositors, etc. Every small finance banks needs approval from RBI before opening of any new branch. It should extend 75% of its ANBC to the classified sectors under PSL by the RBI.
Objectives
- Provide framework to promote rural and semi-urban savings
- Provide credit in local areas to carry out economic activities
- Provide saving vehicles to the underprivileged sections of the society
- By using hi-tech, low-cost technology, supply of credit to small businesses
Eligibility Criteria for Banks
- Min. Paid Up Capital Rs. 100 Crores
- Promoters min. Initial contribution to above 40%(to be bought to 26% within 12 years of commencement)
- Foreign Shareholding as per FDI policy for private banks
- Subjected to all prudential norms and regulations of commercial banks
- Extend 75% of ANBC to the sectors classified as PSL
- At least 50% of its loan portfolio should constitute of loan and advances upto 25 lakhs
- As per Rule 11 of the Banking Regulation (Companies) Rules, 1949, applications had to be submitted in the prescribed form (Form III) to — The Chief General Manager — Department of Banking Regulation — Reserve Bank of India, 13th Floor, Central Office Building, Mumbai – 400 001.
- Additionally,the applicants should furnish the business plan and other requisite information as prescribed.
- Applications were to be accepted till the close of business as on January 16, 2015.
- After experience with SFBs, applications would be received on a continuous basis.
- However, these guidelines are subjected to periodic review and revision by the RBI
Rules and Regulations
- Undertake basic banking services to underprivileged section of the society
- Provide banking facilities to boost savings
- Target small business units through hi-tech, low-cost operations
- Established as public limited company promoted by either individuals, corporate, trust/societies.
- Governed by RBI Act 1934, Banking Regulation Act 1949, etc.
- Considered as non-scheduled banks.
Key Challenges Faced
- Difficulty to maintain ideal technology platform
- Naive to handle deposits
- Huge amount required to invest in infrastructure
- Reduced earning initially to maintain ratios like CRR,SLR etc
No, a promoter of large business/industrial house cannot be promoter of small banks
SFBs are subjected to all the stated regulations by the RBI as well as those exist for commercial banks.
No, there is no cap on the number of branches that can receive license to be SFBs.
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