INTRODUCTION, HISTORY, CAPITAL STRUCTURE, BENEFITS, LIMITATIONS , DIFFERENCE BETWEEN PAYMENT AND SMALL FINANCE BANKS

2.  Small finance banks are a type of niche bank in
India.
 Banks with small finance, bank license can
provide basic banking services of accepting
deposits and lending credit.
 The main aim of such banks is to provide
financial assistance to the worker section of the
society, who are not being served by other banks
such as small business units, small and marginal
farmers, micro and small industries,
unrecognized sector entities, etc.
 One require 10 years experience in banking
sector to open small finance banks.

3.  Registered as public limited companies under
Companies Act, 2013
 Licensed under section 22of the Banking
Regulation Act,1949
 Governed by Reserve Bank of India Act,1934;
Banking Regulations Act,1949;
FEMA,1999
Payment and Settlement Systems Act,2007

4.  In 1996, small finance banks were started in
India.
 Initially, four small finance banks were
established in the Residential Area.
 In 2014, RBI released the guidelines for small
finance banks. In 2015, RBI released the list
of entities which had applied for SFB license.
 There were 72 applicants. After that in 2015
provisional licenses were provided to the ten
entities who would have to convert into SFB
within one year.

7.  The minimum paid up equity capital for small
finance banks shall be 100 crore rupees.
 The promoters minimum initial contribution
to the paid up equity capital of small finance
banks shall be at least 40%. If the initial
share holding by promoter is more than 40%
then it should be brought down to 40% within
5 years and within the period of 10 years it
should be brought down to 30% and after 12
years it should be brought down to 26% from
the date of commencement of small finance
banks.

8.  The maximum loan size and investment limit
to a single or group would be restricted to
10% and 15% of its capital funds respectively.
Further in order to insure that the bank
extends loans primarily to small borrowers,
at least 50% of its loan portfolio should be
upto 25 lakhs.
 Such banks can increase their capital upto
500 crore. Subject to the fulfillment of
requirement of Capital market regulator as
15% of capital adequacy ratio.

9.  SFB are set up to provide financial aid to
carry on the banking activity for small
business units, small & marginal formers,
micro & small industries and unorganized
sector entities.
 Following are the benefits of SFB :
1. Such banks will provide banking facilities to
backward areas.
2. For the development of country such banks
place an important role.

10. 3. It is beneficial to increase the job
opportunities
4. Such bank is beneficial to make the banking
service more effective by splitting its
functions.
5. It is specially designed to meet the
requirements of agricultural credits.

11. 6. It is encouragement to small investment.
7. It gives rise to banking branches which
increases employment opportunities in the
banking section. And also self. Employment
ratio can be raised.
8. Such banks are useful to convert surplus
money into profitable investments.

12.  Limitations in extending loans (50%loans <=25
lakh)
 Maximum loan size to single or group
borrowers cannot exceed 15% of the net
capital.
 The small finance bank cannot be a Business
Correspondent (BC) for another bank.
However, it can have its own BC network.
 They cannot set up subsidiaries.
 For first 3 year, 25% of their branches should
be i unbanked rule areas.

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