Small Finance Banks (SFBs)

GS 3 – Economy  

Small Finance Banks (SFBs) are special banks approved by the Reserve Bank of India (RBI) to offer banking services to low-income individuals and underserved communities. They provide services like microfinance, small loans, savings, and insurance. After starting operations, SFBs are recognized as scheduled banks under the RBI Act, 1934.

Objectives:

The main aim of SFBs is to promote financial inclusion by offering essential banking services to people who are typically excluded from the regular banking system.

Eligibility:

• Indian citizens (residents) with at least 10 years of experience in banking and finance at a senior level can start SFBs.
• Private companies or societies controlled by residents with a successful track record of at least five years can also establish SFBs.
• Existing NBFCs, MFIs, and LABs can convert into SFBs if they meet the regulatory requirements.

Other Requirements:

• Capital Adequacy: SFBs must maintain a minimum Capital to Risk-Weighted Assets Ratio (CRAR) of 15%.
• Priority Sector Lending: 75% of their Adjusted Net Bank Credit (ANBC) must be used for priority sectors like agriculture, education, etc.
• Branch Location: At least 25% of their branches must be in rural, unbanked areas.
• Paid-up Capital: The minimum paid-up capital for an SFB is Rs. 200 crore.
• Regulation: SFBs are registered as public limited companies under the Companies Act, 2013, and are regulated by the RBI Act, 1934 and other relevant laws.