What is SFB?
The Small Finance Bank (SFB) is a private financial institution intended to further the objective of financial inclusion by primarily undertaking basic banking activities of acceptance of deposits and lending to un-served and underserved sections including small business units, small and marginal farmers, micro and small industries and unorganised sector entities, but without any restriction in the area of operations, unlike Regional Rural Banks or Local Area Banks.
Who are eligible to apply?
- Resident individuals/professionals with 10 years of experience in banking and finance and companies and societies owned and controlled by residents,
- 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.
- The minimum capital for SFBs is prescribed at Rs. 100 crores. Foreign Investment is permitted as in the case of other private sector commercial banks.
- They are subject to all prudential norms and regulations of RBI as applicable to existing commercial banks like maintenance of Cash Reserve Ratio (CRR) and Statutory Liquidity Ratio (SLR).
- SFBs can undertake other non-risk sharing simple financial services activities, not requiring any commitment of own fund, such as distribution of mutual fund units, insurance products, pension products, etc. with the prior approval of the RBI.
- The concept of small finance banks was also one of the recommendations in the 2009 Report - A Hundred Small Steps - of the Committee on Financial Sector Reforms headed by Dr. Raghu Ram Rajan.