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Small finance banks
In their eagerness to stay afloat and compete with big banks, small finance banks in India are reportedly seeking to offer higher interest rates than those offered by the full-service banks.
In their eagerness to stay afloat and compete with big banks, small finance banks in India are reportedly seeking to offer higher interest rates than those offered by the full-service banks. As per the Reserve Bank of India guidelines, the minimum paid-up equity capital for small finance banks shall be Rs 100 crore. But the licenses will be granted after the applicants fulfill the necessary ‘fit and proper’ criteria, among other conditions with a sound track record of professional experience or of running their businesses for at least a period of five years, according to bankers-adda.com.
The objectives of setting up of small finance banks will be to further financial inclusion by (a) provision of savings vehicles, and (ii) 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. Resident individuals/professionals with 10 years of experience in banking and finance; and companies and societies owned and controlled by residents will be eligible 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 sound track record of professional experience or of running their businesses for at least a period of five years. The small finance bank shall 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. The minimum paid-up capital shall be Rs 100 crore.
The promoter's minimum initial contribution to the capital shall be at least 40 per cent and gradually brought down to 26 per cent within 12 years from the commencement of business. The foreign shareholding would be as per the FDI policy for private sector banks. While mandating that 25% of the small finance banks’ branches should be in the rural areas within the first year of operation, RBI has allowed their business correspondents to function inter-operably except for opening of savings and current accounts. In September last year, the RBI granted 10 entities in-principle licences to open small finance banks.
