SMALL FINANCE BANKS (SFBs)

Why in News?
The Reserve Bank of India has granted ‘in-principle’ approval to AU Small Finance Bank for transitioning from a small finance bank to a universal bank.

About Small Finance Banks:

• Small Finance Banks (SFBs) in India are a category of banks set up to deliver essential banking services and extend credit facilities to underserved segments of society, such as small business owners, micro and small enterprises, farmers, and those in the unorganized sector (Announced in the Union budget of 2014-15)
• Regulated by: Reserve Bank of India
• Examples: Ujjivan Small Finance Bank, Equitas Small Finance Bank, Northeast Small Finance Bank etc.
• Registered as a public limited company under the Companies Act, 2013.
• Licensed and Governed under the Banking Regulation Act, 1949.
• Eligibility:
  – Resident individuals/professionals (Indian citizens), singly or jointly, each having at least 10 years of experience in banking and finance at a senior level.
  – Companies and societies owned and controlled by residents.
  – Resident-controlled entities like microfinance institutions, non-banking financial companies (NBFCs), local area banks, and payment banks are also eligible to be converted into Small Finance Banks. (Also, Urban Cooperative Banks (UCBs) desirous of converting to SFB may convert to SFB after ensuring compliance with the guidelines).
• The minimum paid-up voting equity capital for small finance banks shall be200 crore, except for such small finance banks which are converted from UCBs.
• Priority Sector Lending: Small Finance Banks have to allocate 75% of their total net credit to priority sector lending, as per the RBI guidelines.
• Branch Network: Small Finance Banks must establish branches in unbanked and underbanked regions, with a strong focus on rural and semi-urban areas. In the initial phase, at least 25% of their branches should be located in unbanked rural areas.

UPSC CSE Prelims 2017:

What is the purpose of setting up of Small Finance Banks (SFBs) in India?

1. To supply credit to small business units
   2. To supply credit to small and marginal farmers
   3. To encourage young entrepreneurs to set up business particularly in rural areas.

Select the correct answer using the code given below:
A. 1 and 2 only
B. 2 and 3 only
C. 1 and 3 only
D. 1, 2 and 3

Ans: A