Important Information About Small Finance Banks in India
History of Small Finance Banks:
Small Finance Banks are a type of niche banks in India. The main objective of these to provide financial inclusion to sections of the financial services not being served by other banks, such as small business units, small and marginal farmers, micro and small industries and unorganised sectors. Banks with a small finance bank license can provide basic banking service of acceptance of deposits and lending.
The Reserve Bank of India released the draft guidelines for small finance banks, seeking comments for interested entities and the general public. There were 72 applications received from the different entities for seeking the small finance bank license in February 2015. It was also announced that an external advisory committee headed by Usha Thorat will evaluate the license applications.
Regulations of Small Finance Banks:
The small finance bank shall be registered as a public limited company under the Companies Act, 2013. It will be licensed under Section 22 of the Banking Regulation Act, 1949 and governed by the provisions of the Banking Regulation Act, 1949; Reserve Bank of India Act, 1934; Foreign Exchange Management Act, 1999; Payment and Settlement Systems Act, 2007; Credit Information Companies (Regulation) Act, 2005; Deposit Insurance and Credit Guarantee Corporation Act, 1961; other relevant Statutes and the Directives, Prudential Regulations and other Guidelines/Instructions issued by RBI and other regulators from time to time.
The small finance banks will be given scheduled bank status once they commence their operations, and found suitable as per Section 42 (6) (a) of the Reserve Bank of India Act, 1934.
Objective of Small Finance Banks:
The objectives of setting up of small finance banks will be to further financial inclusion by
- provision of savings vehicles, and
- supply of credit to small business units; small and marginal farmers; micro and small industries; and other unorganised sector entities, through high technology-low cost operations.
There will not be any restriction in the area of operations of small finance banks.
Capital requirement for Small Finance Banks:
The minimum paid-up equity capital for small finance banks shall be Rs. 100 crore. The promoter’s minimum initial contribution to the paid-up equity capital of such small finance bank shall at least be 40 per cent and gradually brought down to 26 per cent within 12 years from the date of commencement of business of the bank. The foreign shareholding in the small finance bank would be as per the Foreign Direct Investment (FDI) policy for private sector banks as amended from time to time.
Eligible promoters of Small Finance Banks:
- Resident individuals/professionals with 10 years of experience in banking and finance; and Companies and Societies owned and controlled by residents will be eligible as promoters to set up small finance banks.
- Existing Non-Banking Finance Companies (NBFCs), Micro Finance Institutions (MFIs), and Local Area Banks (LABs) that are owned and controlled by residents can also opt for conversion into small finance banks.
- Promoter/promoter groups should be ‘fit and proper’ with a similar record of professional experience or of running their businesses for at least a period of five years in order to be eligible to promote small finance banks.
Norms of Small Finance Banks:
- The small finance bank will be subject to all prudential norms and regulations of RBI as applicable to existing commercial banks including requirement of maintenance of Cash Reserve Ratio (CRR) and Statutory Liquidity Ratio (SLR). No forbearance would be provided for complying with the statutory provisions.
- The small finance banks will be required to extend 75 per cent of its Adjusted Net Bank Credit (ANBC) to the sectors eligible for classification as priority sector lending (PSL) by the Reserve Bank.
- At least 50 per cent of its loan portfolio should constitute loans and advances of upto Rs. 25 lakh.
Contribution of Promoters in Small Finance Banks:
- If the initial shareholding by promoter in the bank is in excess of 40 per cent, it should be brought down to 40 per cent within a period of five years. The promoter’s minimum contribution of 40 per cent of paid-up equity capital shall be locked in for a period of five years from the date of commencement of business of the bank.
- Then the promoter’s stake should be brought down to 30 per cent of the paid-up equity capital of the bank within a period of 10 years, and to 26 per cent within 12 years from the date of commencement of business of the bank.
FDI in Small Finance Banks:
- Following the current FDI policy, the aggregate foreign investment in a private sector bank from all sources will be allowed up to a maximum of 74 per cent of the paid-up capital of the bank. At all times, at least 26 per cent of the paid-up capital will have to be held by residents.
- In the case of Foreign Institutional Investors (FIIs) / Foreign Portfolio Investors (FPIs), individual FII / FPI holding is restricted to below 10 per cent of the total paid-up capital, aggregate limit for all FIIs /FPIs / Qualified Foreign Investors (QFIs) cannot exceed 24 per cent of the total paid-up capital, which can be raised to 49 per cent of the total paid-up capital by the bank concerned through a resolution by its Board of Directors followed by a special resolution to that effect by its General Body.
- If these banks aspire to transit into a universal bank, such transition will not be automatic, but would be subject to it applying to RBI for such conversion and fulfilling minimum paid-up capital / net worth requirement as applicable to universal banks.
- Its satisfactory performance as a small finance bank for a minimum period of five years and the outcome of RBI’s due diligence exercise. On transition into a universal bank, it will be subjected to all the norms including NOFHC structure as applicable to universal banks.
|SMALL FINANCE BANK||HEADQUARTER||HEAD PERSON|
|AU Small Finance Bank||Rajasthan (Jaipur)||Sanjay agarwal (CMD)|
|Capital Local Area Bank Ltd
(1st small finance bank)
|Punjab (Jalandhar)||Sarvjit Samra (CMD)|
|Disha Microfin Private Ltd (Fincare)||Gujarat (Ahmedabad)||Pramod Kabra (Chairman)|
|Equitas Holdings P Limited||Tamilnadu (Chennai)||Bhaskar.S (Executive Director & CEO)|
|ESAF Microfinance and Investments Private Ltd||Thrissur (Kerala)||K.Paul Thomas (CMD)|
|Janalakshmi Financial Services Private Limited||Karnataka (Bengaluru)||Ramesh Ramanathan (chairman)
V.S.Radha Krishnan (MD & CEO)
|RGVN (North East) Microfinance Limited||Assam (Guwahati)||Brji Mohan (chairman)
Rupali Kalita (Managing director)
|Suryoday Micro Finance Private Ltd||Maharastra (Navi Mumbai)||R.Basker Babu (MD & CEO)|
|Ujjivan Financial Services Private Ltd||Karnataka (Bengaluru)||Sudha Suresh (MD & CEO)|
|Utkarsh Micro Finance Private Ltd||Uttar Pradesh(Varanasi)||Ragvendra Singh (MD & CEO)|