Small Finance Bank in India – List, Functions, Meaning, SFB UPSC
By BYJU'S Exam Prep
Updated on: September 6th, 2023
Small Finance Banks (SFBs) are banks that have limited financial resources and are regulated by the Reserve Bank of India. The objective of SFBs is to provide loan services to the unorganized sector, including households, micro-businesses, and small manufacturing units. Small Finance Banks were introduced in India to increase credit penetration into this segment.
In recent years, significant efforts have been made by the government towards promoting growth in this sector through various initiatives such as a tap licensing scheme for Small Finance Banks; setting up a mechanism called SIDBI (Small Industries Development Bank of India) under CSO control, etc. In this article, we have covered all about Small Finance Bank in India such as their functions, features, objectives, and list of all the SFBs in India.
Table of content
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1.
What is Small Finance Bank?
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2.
List of Small Finance Banks in India
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3.
Need of Small Finance Banks (SFBs)
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4.
History of Banking Regulations in India
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5.
Objective of Small Finance Banks
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6.
Tap Licensing of Small Finance Banks
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7.
Criteria for Licensing Small Finance Banks
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8.
Payments Banks vs Small Finance Banks
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9.
Small Finance Banks UPSC
What is Small Finance Bank?
Small Finance Banks (SFBs) are commonly known as finance banks. Small Finance Banks are regulated by the Reserve Bank of India (RBI), meaning they must follow specific rules and regulations. Small Finance Banks are not-for-profit organizations owned by the government or state governments, who also own all other commercial banks in India.
Small Finance Banks UPSC Notes
The Reserve Bank of India gives the Small Finance Banks special privileges, such as lower interest rates than other banks can offer their customers regarding loans made within their jurisdiction (this allows them access). Small Finance Banks are not allowed to lend money to large corporations; they can only lend money to small businesses. It was done by the government so that these types of financial institutions would not compete for the same customers as commercial banks.
List of Small Finance Banks in India
There are many Small Finance Banks working currently in India. The number of SFBs has increased over the years, and here is a list of some of the important SFBs in India.
Capital Small Finance Bank (India’s first small finance bank)
- Capital Small Finance Bank (formerly Capital Local Area Bank Ltd) is India’s first small finance bank that started its banking operations in April 2016 in Jalandhar, Punjab.
- The bank got its license as a Small Finance Bank from the Reserve Bank of India (RBI) in March 2016.
- Managing Director of Capital Small Finance Bank: Sarvjit Singh Samra
- Headquarters of Capital Small Finance Bank: Jalandhar, Punjab.
- Tagline: Vishwas Se Vikas Tak
Equitas Small Finance Bank
Formerly Equitas Holdings P Limited started its banking operations with 3 branches in Chennai in September 2016. The bank got its license as a Small Finance Bank from the Reserve Bank of India (RBI) in July 2016.
- PN Vasudevan is the Managing Director & CEO of Equitas Small Finance Bank.
- Headquarters of Equitas Small Finance Bank – Chennai, Tamil Nadu.
- Tagline – It’s Fun Banking
Utkarsh Small Finance Bank
- It was formerly known as Utkarsh Micro Finance
- It started its operations with five branches across Varanasi, Patna, Delhi-NCR, and Nagpur in January 2017.
- The bank got its license as a Small Finance Bank from the Reserve Bank of India (RBI) in November 2016.
- Govind Singh is the Managing Director & CEO of Utkarsh Small Finance Bank.
- Headquarters of Utkarsh Small Finance Bank: Varanasi, UP
- Tagline: Apki Umeed Ka Khata
Suryoday Small Finance Bank
Formerly Suryoday Micro Finance Ltd) started its banking operation in January 2017 in Belapur, Navi Mumbai. The bank got its license as a Small Finance Bank in November 2016.
- Baskar Babu Ramachandran is the Managing Director & CEO of Suryoday Small Finance Bank.
- Headquarter of Suryoday Small Finance Bank: Belapur, Navi Mumbai.
- Tagline: A Bank of Smiles.
Ujjivan Small Finance Bank
A subsidiary of Ujjivan Financial Services Ltd) started its banking operations in February 2017 in Bengaluru, Karnataka. The bank got its license as a Small Finance Bank in November 2016.
- Samit Ghosh is the Managing Director & CEO of Ujjivan Small Finance Bank.
- Headquarter of Ujjivan Small Finance Bank: Koramangala, Bengaluru, Karnataka.
- Tagline: Bharosa, Aap Ke Bharose Par
ESAF Small Finance Bank
It was formerly known as ESAF Microfinance and Investments Private Ltd.
- It started its banking operations in Thrissur, Kerala in March 2017.
- The bank got its license as a Small Finance Bank from the Reserve Bank of India (RBI) in November 2016.
- Headquarter of ESAF Small Finance Bank: Thrissur, Kerala.
- ESAF will be the first bank to be given a banking license in Kerala since its independence.
- Tagline: Joy of Banking
Note: On 28 Dec 2018, Esaf Small Finance Bank received the Reserve Bank approval to operate as a scheduled bank.
AU Small Finance Bank
- It started its banking operation as a Small Finance Bank in April 2017.
- The bank got its license in December 2016.
- Sanjay Agarwal is the Managing Director & CEO of Au Small Finance Bank.
- Headquarter of Au Small Finance Bank: Jaipur, Rajasthan.
- Tagline: Chalo Aage Badhe
Fincare Small Finance Bank
- It was previously known as Disha Microfin Limited and started its banking operations in September 2017, with about 25 operational branches across Gujarat, Tamil Nadu, Karnataka, and Andhra Pradesh.
- Rajeev Yadav is the Managing Director & CEO of Fincare Small Finance Bank.
- Headquarters: Bengaluru, Karnataka.
- Tagline: Banking on More.
North East Small Finance Bank
- The Rashtriya Gramin Vikas Nidhi Microfinance Limited-North East (RGVNMFL-NE), the promoter of North East Small Finance Bank, got the license of Small Finance Bank from the Reserve Bank of India (RBI) in March 2017.
- MD: Rupali Kalita
- Headquarters of North East Small Finance Bank: Guwahati, Assam.
- Tagline: Your DoorStep Banker
Jana Small Finance Bank
- Established: March 2018.
- Headquarters of Jana Small Finance Bank: Bengaluru
- Tagline: Paise Ke Kadar
- MD & CEO: Ajay Kanwal
Need of Small Finance Banks (SFBs)
Small Finance Banks are banks that lend to small businesses and individuals. They are regulated by the Reserve Bank of India (RBI), meaning they must follow specific rules set by RBI. The Reserve Bank of India introduced the small finance bank policy in 2015 to provide credit to the unserved and underserved population. Some critical criteria for licensing Small Finance Banks include a minimum paid-up equity capital of Rs.100 crores, the net worth of the bank, and geographical remoteness. To tap into this potential market, the RBI has granted similar licenses to several Small Finance Banks.
History of Banking Regulations in India
The Reserve Bank of India (RBI) has been the regulator for banks in India since 1949. In the 1960s, the RBI gave special privileges to small banks and not-for-profit organizations. In 2015, the RBI granted licenses to 10 Small Finance Banks. These banks are regulated like any other banks in India. They can only accept deposits from individuals and small businesses.
Objective of Small Finance Banks
Small Finance Banks (SFBs) are financial institutions licensed to provide banking services to the unserved and underserved population. They offer a range of products, including savings accounts, fixed deposits, and term loans to farmers.
- The primary objective of SFBs is to provide a convenient, safe, and efficient banking service for their customers who cannot access mainstream financial institutions due to geographical remoteness or socio-economic disadvantage.
- They also provide credit to the unserved and underserved population, with a primary focus on farmers. However, they often cannot access mainstream financial institutions due to geographical remoteness or socio-economic disadvantage.
The Reserve Bank of India (RBI) regulates SFBs, and licensing is on tap. Critical criteria for licensing include a minimum net worth of Rs 100 crore and a maximum foreign investment cap of 74 percent. The government has also issued mobile banking guidelines, allowing customers to use their mobile phones as credit or debit cards.
Tap Licensing of Small Finance Banks
On Tap is an initiative by the Reserve Bank of India (RBI) that allows Small Finance Banks to grow faster and offer better customer services. The RBI has decided that all new applicants for permission to set up a new bank should be eligible for an On Tap license from January 1, 2019. It means that if you are planning to start an SFB or apply for one later this year, it will be beneficial for your business if you have an existing relationship with us, as we can help expedite your application process based on our experience in granting similar licenses earlier. On Tap licensing is valid from January 1, 2019, onwards. The RBI will issue a circular announcing specific dates of each year when applications can be submitted.
Eligibility Criteria For Tap Licensing
The applicant should be a Limited Company incorporated in India under the Companies Act 2013. It should have a minimum net owned fund of Rs. 300 crores and a minimum paid-up capital of Rs. 100 crores. It should also have at least 25% of the promoters’ contribution (both tangible and intangible) towards net worth or paid-up capital
Criteria for Licensing Small Finance Banks
To be eligible for a small finance bank license, entities should fulfill the following conditions:
- The banks can only accept deposits from residents and residents of Bhutan, Nepal, Myanmar, and Pakistan.
- They must have a minimum paid-up equity capital of Rs.100 crores.
- They must be in existence for at least five years.
Payments Banks vs Small Finance Banks
Payments Banks and Small Payments Banks are licensed entities of RBI, and India’s central bank monitors their operation and direction. However, they differ in many ways. Definition:
- Payments banks are similar to commercial banks but operate at small scales, excluding credit risks. They perform maximum banking functions but do not issue credit cards and advance loans.
- On the contrary, Small Finance Banks are financial institutes that aim to provide financial aid to deprived sections with fundamental banking operations.
Purpose:
- The main objective of establishing the payments banks is to expand financial inclusions by offering minor savings accounts. Also, they aim to provide payment facilities to emigrant laborers, low-earning families, small enterprises, and many other unorganized bodies.
- The main objective of establishing Small Finance Banks is the extension of financial inclusions by supplying credits to small enterprises, micro & small farmers and industries, and many other unorganized organizations.
Statistical Number:
- Six Payments banks are currently active in India till December 2021. Some well-known Payment banks are NSDL Payments Bank, Airtel Payments Bank, etc.
- On the other side, India has 11 Small Finance Banks till December 2021. Capital Small Finance Bank and FINCARE Small Finance Bank are among India’s well-known Small Finance Banks.
Operative Scopes:
- The Payments Banks perform activities such as issuing ATM or Debit Cards and providing mobile banking services. They do not issue credit cards.
- However, Small Finance Banks perform all the fundamental activities only for underprivileged sections.
Time Deposits:
- The Payments Banks do not provide time deposit services like FD and RD.
- In contrast, Small Finance Banks provide both FD and RD services.
Read: Difference Between Small Finance Bank and Payment Bank
Small Finance Banks UPSC
The topic of Small Finance Banks is important for the UPSC exam because it falls under the Indian Economy syllabus for UPSC, which is an important component of General Studies. UPSC aspirants are expected to have a comprehensive understanding of the banking sector in India and the initiatives taken by the government to promote financial inclusion. Questions related to the functioning of SFBs, their objectives, and their impact on the Indian economy can be expected in the Civil Service Exam. Therefore, a comprehensive understanding of the topic is essential for aspirants.
Small Finance Banks UPSC Questions
Question 1: Which is the first-ever Small Finance Bank established in India? options- Capital Small Finance Bank, FINCARE Small Finance Bank, ESFA Small Finance Bank, Equitas Small Finance Bank
Answer: Capital Small Finance Bank
Question 2: Which of the following operations are undertaken by Small Finance Banks? Options- Accepting deposits, disturbing small loans, selling insurance products, all of these
Answer: All of These
Question 3: Small Finance Banks can offer Which type of loan? options: (a)Personal loans, (b)Housing loans (c)Consumer loans, (d)Auto loans, (e)All of These
Answer: All of These