Small Finance Banks (SFBs)
Why it Matters?
The Government of India and the Reserve Bank of India (RBI) are exploring new bank licences and Public Sector Bank (PSB) mergers to build a robust financial system that supports India’s growth towards becoming the third-largest economy by 2027–28.
What You Should Know?
SFBs are niche scheduled commercial banks licensed by the Reserve Bank of India (RBI) to provide basic banking services to underserved and low-income groups.
SFBs offer services like microfinance, small loans, savings, insurance, and remittances.
They are granted Scheduled Bank status once operational and found eligible under Section 42 of the RBI Act, 1934.
It must be registered as a public limited company under the Companies Act, 2013.
It is governed by the Banking Regulation Act, 1949, and the RBI Act, 1934.
The minimum paid-up voting equity capital is ₹200 crore.
It is required to maintain a Capital to Risk Weighted Assets Ratio (CRAR) of 15%.
It must allocate 75% of Adjusted Net Bank Credit (ANBC) to Priority Sector Lending (PSL).
25% of total branches must be opened in unbanked rural areas.
50% of total loans should be of ticket size below ₹25 lakh.
Eligibility:
Resident individuals/professionals with 10+ years of experience in banking/finance.
Resident-controlled companies, societies, NBFCs, MFIs, and LABs with a 5-year track record.
SFBs can be converted from existing NBFCs, Microfinance Institutions (MFIs), or Local Area Banks (LABs).
SFBs operate under an on-tap licensing regime (RBI accepts applications year-round).
It may conduct foreign exchange business with RBI approval.