SMALL BANKS IN INDIA- OBJECTIVES & REGULATION
Introduction
Such Banks can provide basic banking services such as, acceptance of deposits and lending. The objective behind setting up small banks in India is to serve un-served/un-organized sections of the society and provide credit to small business units, micro & small industries small and marginal farmers, and other unorganized sectors. Financial inclusion was also an objective.
Objectives
So the primary objectives are to provide an institutional mechanism for promoting rural and semi urban savings and for providing credit for viable economic activities in the local areas.
Registration, Regulation, and Equity capital
- Existing non-banking financial companies (NBFC), microfinance institutions and local area banks can apply to become small finance banks. These can be promoted either by individuals, corporate, trusts or societies.
- The promoters should have 10 years’ experience in banking and finance. The promoter’s stake in the paid-up equity capital will be at least 40% initially but must be brought down to 26% in 12 years. Joint ventures are not permitted. According to FDI policy foreign investors can invest in small finance banks up to 74 percent of equity capital (49 percent from direct route and other from approval route).
- The small finance banks are registered under the Companies Act, 2013. It is licensed under section 22 of the Banking Regulation Act, 1949.
- The minimum paid-up capital required to set up a small finance bank is Rs.200 crore and it will be required to maintain a capital adequacy ratio of 15 percent of its risk-weighted assets.
History
- In February 2015, RBI released the list of entities which had applied for a small finance bank license.
- On 17 September 2015, The RBI announced that it had given provisional licenses to ten entities that would have to convert into small finance banks within one year. Eight out of these ten entities were microfinance NBFCs, reiterating RBIs agenda of financial inclusion.
- Capital Small Finance Bank was the first small finance bank to begin operations, opening with 47 branches on 24 April 2016.
- On 26 April, 2021, the RBI issued an in-principle approval to Uttar Pradesh based Shivalik Mercantile Co-operative Bank Limited for transition into a small finance bank. Thus, it has become India’s first urban co-operative bank (UCB) to transition to a Small Finance Bank (SFB).
Some operating small finance banks in India
Bank Name Commencement Headquarter Capital small finance bank 24 April, 2016 Jalandhar Equitas small finance bank 5 September, 2016 Chennai Suryodaya small finance bank 23 January, 2017 Navi Mumbai Utkarsh small finance bank 23 January, 2017 Varanasi Ujjivan small finance bank 1 February, 2017 Bangalore ESAF small finance bank 17 March, 2017 Trissur, Kerala AU small financial bank 19 April, 2017 Jaipur Fincare small finance bank 21 July, 2017 Bangalore North East Small Finance Bank 17 October 2017 Guwahati JanaLakshmi small finance bank 29 March,2018 Bangalore Shivalik Small Finance Bank 26 April, 2021 Noida, U.P
Frequently Asked Questions (FAQ)
What are small banks in India?
Small banks are those which provide basic banking services such as, acceptance of deposits and lending. These are registered under the Companies Act, 2013, licensed under section 22 of the Banking Regulation Act, 1949.
What is the paid-up capital and capital adequacy ratio required for small banks?
The minimum paid-up capital required to set up a small finance bank is Rs.200 crore and it will be required to maintain a capital adequacy ratio of 15 percent of its risk-weighted assets.
The 1st small banks in India was:
Capital Small Finance Bank.
Who is the 1st Co-operative Bank Limited transit into a small finance bank?
Shivalik Mercantile Co-operative Bank Limited.
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