Important Information About Small Finance Banks in India

Small Finance Banks:

Here we have provided complete details on small finance banks in India.  As per the reference from the previous SBI/IBPS and other bank exams, we have to study more about Banking terms and technology used and existing now. For that, we will provide you the study materials for Banking Awareness on daily basis. Here today we provide you with the study notes on Small Finance Banks. Get benefited from the information provided. Here we have given the Important Information About Small Finance Banks in India with their Headquarters and Its Heads for IBPS and Upcoming Examinations 2021. Candidates who are all preparing for the Examination can use this study material on the list of small finance banks in India and their headquarters pdf. So that you can make your preparation more effective for the upoming bank exams.

History:

Small Finance Banks are 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 unorganized 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 from 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.

Capital Requirement for Small Finance Banks:

The minimum paid-up equity capital for small finance banks shall be Rs. 200 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:

1. 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.
2. 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.
3. 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 the 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 percent of their Adjusted Net Bank Credit (ANBC) to the sectors eligible for classification as priority sector lending (PSL) by the Reserve Bank.
• At least 50 percent of its loan portfolio should constitute loans and advances of up to Rs. 25 lakh.

Contribution of Promoters in Small Finance Banks:

1. If the initial shareholding by the promoter in the bank is in excess of 40 percent, it should be brought down to 40 percent within a period of five years. The promoter’s minimum contribution of 40 percent 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.
2. Then the promoter’s stake should be brought down to 30 percent of the paid-up equity capital of the bank within a period of 10 years, and to 26 percent within 12 years from the date of commencement of business of the bank.

FDI in Small Finance Banks:

1. 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 percent of the paid-up capital of the bank. At all times, at least 26 percent of the paid-up capital will have to be held by residents.
2. In the case of Foreign Institutional Investors (FIIs) / Foreign Portfolio Investors (FPIs), individual FII / FPI holding is restricted to below 10 percent of the total paid-up capital, the aggregate limit for all FIIs /FPIs / Qualified Foreign Investors (QFIs) cannot exceed 24 percent of the total paid-up capital, which can be raised to 49 percent 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.

Transition Path:

• 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.

5 responses to “Important Information About Small Finance Banks in India”

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   October 13, 2026 at 7:21 am

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3. Dipayan Nag says:

   October 26, 2017 at 1:14 am

   ESAF Microfinance is in Kerala , not Tamil Nadu

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4. Tapan says:

   October 25, 2017 at 8:54 pm

   thank you

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5. Aravinthan says:

   October 25, 2017 at 5:44 pm

   thank you

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