{"id":11924,"date":"2020-07-01T17:40:59","date_gmt":"2020-07-01T12:10:59","guid":{"rendered":"https:\/\/corpbiz.io\/learning\/?p=11924"},"modified":"2021-01-22T15:52:38","modified_gmt":"2021-01-22T10:22:38","slug":"small-finance-bank-license","status":"publish","type":"post","link":"https:\/\/corpbiz.io\/learning\/small-finance-bank-license\/","title":{"rendered":"Guide on Small Finance Bank license"},"content":{"rendered":"\n<p class=\"has-drop-cap\">Small finance banks primarily set up to\nsupport the under-privileged section of the economy, which often fails to avail\nof the benefit of major banks. Such banks emerge as an excellent platform for\nthose lacking in financial prowess and don&#8217;t have access to major banks. These\ncommercial houses primarily support small scale enterprises, small farmers,\nsmall businesses, or low-income households. This blog will address the key area\nof concern w.r.t Small Finance Bank license.<\/p>\n\n\n\n<p>Small finance banks come under the Company Act 2013 and meet the compliances similar to a <a href=\"https:\/\/corpbiz.io\/public-limited-company-registration\"><strong>public limited company<\/strong><\/a>. Such banks are licensed under the banking regulation act 1949, section 22. Also, it works under the framework of the RBI Act 1943 regulation. These banks have been established to support the weaker part of the economy belong to rural and semi-urban areas.<\/p>\n\n\n\n<p>Small finance banks give opportunities for\nusing the current and saving accounts to their depositors. They also support\nthem by providing services w.r.t refinancing, commercial papers, and fixed\ndeposits. Coming to the interest rate, SFCs offer a 6-7% and a 9% rate of\ninterest on saving and fixed accounts, respectively. <\/p>\n\n\n\n<p>Small finance banks provide two types of loans i:e group &amp; individual loans. Anyone can avail of group loans on joint liability. If one of the group members encounters some issue regarding the loan repayment, the whole group is accountable for completing the loan tenure. Prior approval from RBI is mandatory if a financial firm willing to be part of this business and want to open a new branch. An adjusted net bank credit of small finance bank is subjected to a mandatory 75% extension to classified sectors under the PSL by the RBI. <\/p>\n\n\n\n<div id=\"ez-toc-container\" class=\"ez-toc-v2_0_82_2 counter-hierarchy ez-toc-counter ez-toc-grey ez-toc-container-direction\">\n<div class=\"ez-toc-title-container\">\n<p class=\"ez-toc-title ez-toc-toggle\" style=\"cursor:pointer\">Page Contents<\/p>\n<span class=\"ez-toc-title-toggle\"><a href=\"#\" class=\"ez-toc-pull-right ez-toc-btn ez-toc-btn-xs ez-toc-btn-default ez-toc-toggle\" aria-label=\"Toggle Table of Content\"><span class=\"ez-toc-js-icon-con\"><span class=\"\"><span class=\"eztoc-hide\" style=\"display:none;\">Toggle<\/span><span class=\"ez-toc-icon-toggle-span\"><svg style=\"fill: #999;color:#999\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" class=\"list-377408\" width=\"20px\" height=\"20px\" viewBox=\"0 0 24 24\" fill=\"none\"><path d=\"M6 6H4v2h2V6zm14 0H8v2h12V6zM4 11h2v2H4v-2zm16 0H8v2h12v-2zM4 16h2v2H4v-2zm16 0H8v2h12v-2z\" fill=\"currentColor\"><\/path><\/svg><svg style=\"fill: #999;color:#999\" class=\"arrow-unsorted-368013\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" width=\"10px\" height=\"10px\" viewBox=\"0 0 24 24\" version=\"1.2\" baseProfile=\"tiny\"><path d=\"M18.2 9.3l-6.2-6.3-6.2 6.3c-.2.2-.3.4-.3.7s.1.5.3.7c.2.2.4.3.7.3h11c.3 0 .5-.1.7-.3.2-.2.3-.5.3-.7s-.1-.5-.3-.7zM5.8 14.7l6.2 6.3 6.2-6.3c.2-.2.3-.5.3-.7s-.1-.5-.3-.7c-.2-.2-.4-.3-.7-.3h-11c-.3 0-.5.1-.7.3-.2.2-.3.5-.3.7s.1.5.3.7z\"\/><\/svg><\/span><\/span><\/span><\/a><\/span><\/div>\n<nav><ul class='ez-toc-list ez-toc-list-level-1 eztoc-toggle-hide-by-default' ><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-1\" href=\"https:\/\/corpbiz.io\/learning\/small-finance-bank-license\/#The_objective_of_small_finance_banks\" >The objective\nof small finance banks<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-2\" href=\"https:\/\/corpbiz.io\/learning\/small-finance-bank-license\/#Rules_for_Small_Finance_banks\" >Rules\nfor Small Finance banks<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-3\" href=\"https:\/\/corpbiz.io\/learning\/small-finance-bank-license\/#Critical_challenges_encountered_by_Small_Finance_Bank\" >Critical\nchallenges encountered by Small Finance Bank<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-4\" href=\"https:\/\/corpbiz.io\/learning\/small-finance-bank-license\/#Eligibility_Criteria_for_Small_Finance_Bank_license\" >Eligibility Criteria for Small Finance Bank license<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-5\" href=\"https:\/\/corpbiz.io\/learning\/small-finance-bank-license\/#Small_Finance_Bank_license_Important_Points_to_Remember\" >Small Finance\nBank license: Important Points to Remember<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-6\" href=\"https:\/\/corpbiz.io\/learning\/small-finance-bank-license\/#Prudential_norms_Small_Finance_Bank_license_viewpoint\" >Prudential\nnorms: Small Finance Bank license viewpoint<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-7\" href=\"https:\/\/corpbiz.io\/learning\/small-finance-bank-license\/#Conclusion\" >Conclusion<\/a><\/li><\/ul><\/nav><\/div>\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"The_objective_of_small_finance_banks\"><\/span>The objective\nof small finance banks<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<div class=\"wp-block-image\"><figure class=\"aligncenter\"><img decoding=\"async\" width=\"649\" height=\"423\" src=\"https:\/\/corpbiz.io\/learning\/wp-content\/uploads\/2020\/07\/image-4.png\" alt=\"objective of small finance banks\" class=\"wp-image-11925\" srcset=\"https:\/\/corpbiz.io\/learning\/wp-content\/uploads\/2020\/07\/image-4.png 649w, https:\/\/corpbiz.io\/learning\/wp-content\/uploads\/2020\/07\/image-4-300x196.png 300w\" sizes=\"(max-width: 649px) 100vw, 649px\" \/><\/figure><\/div>\n\n\n\n<ul><li>Its primary objective is to provide an\ninstitutional mechanism w.r.t saving promotion among the underprivileged\nsection of the society.<\/li><li>It helps to provide financial help to small\nbusiness units; small farmers, small industries, and other unorganized sectors.<\/li><\/ul>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Rules_for_Small_Finance_banks\"><\/span>Rules\nfor Small Finance banks<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<ul><li>Small finance banks cannot violate the working framework of the conventional banking system. They must act as guiding light for underprivileged society lacking in financial support. <\/li><li>They must perform primary tasks like lending and deposit for money to backward sections.<\/li><li>It has to render excellent banking services to raise awareness about savings among the backward section of society. <\/li><li>Since such banks are deemed as a public limited company, their promotion might pursue via individuals, trust, corporate, or societies. <\/li><li>These banks shall not violate the provision of the RBI Act 1934 and the <strong>Banking Regulation Act 1949<\/strong><sup><a href=\"https:\/\/en.wikipedia.org\/wiki\/Banking_Regulation_Act,_1949\"><strong>[1]<\/strong><\/a><\/sup>.<\/li><li>Small Finance Banks, under no circumstances, raised funds from the Reserve Bank of India, unlike their primary counterparts. <\/li><\/ul>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Critical_challenges_encountered_by_Small_Finance_Bank\"><\/span>Critical\nchallenges encountered by Small Finance Bank<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<ul><li>It is hard for such banks to keep up with the evolving technology that supports seamless and swift transactions benefiting both customers and banks in several ways.&nbsp; <\/li><li>Previously, Small finance banks work like <a href=\"https:\/\/corpbiz.io\/microfinance-company-registration\"><strong>Microfinance institutions<\/strong><\/a> that don&#8217;t deal with deposits very often.&nbsp; <\/li><li>Small Finance Bank needs more significant investment to enable deposits via ATM and partnering with banks.<\/li><li>Capital adequacy ratio (CRR) and (SLR) will be elements from a management viewpoint, which will impact the overall earnings until SFBs procure a huge depositor base. <\/li><\/ul>\n\n\n\n<p class=\"text-left\"><b>Read our article<\/b>:<mark style=\"background: #fffd03 !important;\"><a href=\"https:\/\/corpbiz.io\/learning\/buying-and-selling-of-nbfcs-in-india\/\">\nBuying and Selling of NBFCs in India: A Complete overview\n<\/a><\/mark><\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Eligibility_Criteria_for_Small_Finance_Bank_license\"><\/span>Eligibility Criteria for Small Finance Bank license<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<div class=\"wp-block-image\"><figure class=\"aligncenter\"><img decoding=\"async\" width=\"576\" height=\"410\" src=\"https:\/\/corpbiz.io\/learning\/wp-content\/uploads\/2020\/07\/image-5.png\" alt=\"Eligibility Criteria for Small Finance Bank license\" class=\"wp-image-11927\" srcset=\"https:\/\/corpbiz.io\/learning\/wp-content\/uploads\/2020\/07\/image-5.png 576w, https:\/\/corpbiz.io\/learning\/wp-content\/uploads\/2020\/07\/image-5-300x214.png 300w\" sizes=\"(max-width: 576px) 100vw, 576px\" \/><\/figure><\/div>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Small_Finance_Bank_license_Important_Points_to_Remember\"><\/span>Small Finance\nBank license: Important Points to Remember<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<ul><li>Small finance banks are a major source of\ncredit to small and micro-enterprise and under-banked regions in the country.\nThis is why RBI enforced the provision to control such banks&#8217; activities in the\nprivate sector. <\/li><li>Payment banks emerge as a new way of banking\nconceptualized by RBI. These banks have the authority to accept a restricted\ndeposit, currently limited to \u20b9100,000\/customer. Unlike conventional banks,\nthese banks are entitled to issue credit cards and loans.<\/li><\/ul>\n\n\n\n<ul><li>Although these banks have working protocols\nidentical to conventional banks, they work on a limited scale. For instance,\nSFCs don&#8217;t enforce any limit on deposit per account. Meanwhile, payment banks\noffer a limit of Rs 1 lakh. Similarly, SBCs are capable of lending financial\nproducts, whereas payment does have such liberty at their disposal. <\/li><\/ul>\n\n\n\n<ul><li>Currently, 21 Private sector banks are working\nin India, out of which 13 banks were already in existence before 1969 are still\nworking as an independent entity.<\/li><\/ul>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Prudential_norms_Small_Finance_Bank_license_viewpoint\"><\/span>Prudential\nnorms: Small Finance Bank license viewpoint<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<ul><li>The newly set up SFCs should have conformity\nwith relevant RBI&#8217;s provisions and a robust risk management framework.<\/li><li>The SFCs must follow all rules and regulations\nin the context of Cash Reserve Ratio (CRR) and Statutory Liquidity Ratio (SLR).<\/li><li>No forbearance would be permitted to such\nbanks w.r.t statutory provisions.<\/li><li>SFCs must allocate 40 percent of its ANBC to\nsub-sectors under PSL, as per PSL provisions. <\/li><li>The first balance sheet as on March 31st,\npost-initiation of SBCs operation, would establish the foundation for the first\nPSL target. <\/li><li>The SFCs are not authorized to sell out PSL\ncertificates to the concerned party, especially between the start of the\nbusiness and the date of first balance sheet. <\/li><li>The maximum loan size is limited to 10% and\n15% of capital funds w.r.t a single and group obligor. <\/li><li>To ensure the extension of the loan period for\nsmall borrowers, the SBCs loan portfolio should represent the loans and\nadvances of up to Rs.25 lakh. <\/li><\/ul>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Conclusion\"><\/span>Conclusion<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>To sum up, small finance banks play a vital\nrole in filling up the financial holes created in the backward society\novertimes. Through easy lending and deposit schemes, these banks play a crucial\nrole in raising awareness about monetary saving and credit among the\nunderprivileged section of the society. Easy access, hassle-free loan, and\nquick deposit are the few things that make SBCs as a standout choice among the\norganized banks. <\/p>\n\n\n\n<p>Despite the identical working protocols, SBCs differ from conventional banks in many ways. Our <a href=\"https:\/\/corpbiz.io\/\"><strong>CorpBiz<\/strong><\/a> group will be at your disposal if you want expert advice on any aspect of <a href=\"https:\/\/corpbiz.io\/nbfc-registration\"><strong>NBFC Registration<\/strong><\/a>. We will help you to ensure complete compliances concerning all the issues related to Small Finance Bank license, their objectives, Rules and Key Challenges in India based per your desired activities, ensuring the fruitful and well-timed completion of your work.<\/p>\n\n\n\n<p class=\"text-left\"><b>Read our article<\/b>:<mark style=\"background: #fffd03 !important;\"><a href=\"https:\/\/corpbiz.io\/learning\/participation-of-nbfcs-in-insurance-business\/\">\nA Complete Overview on Participation of NBFCs in Insurance Business\n<\/a><\/mark><\/p>\n","protected":false},"excerpt":{"rendered":"<p>Small finance banks primarily set up to support the under-privileged section of the economy, which often fails to avail of the benefit of major banks. Such banks emerge as an excellent platform for those lacking in financial prowess and don&#8217;t have access to major banks. These commercial houses primarily support small scale enterprises, small farmers, [&hellip;]<\/p>\n","protected":false},"author":22,"featured_media":11929,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":[],"categories":[91],"tags":[719],"acf":{"service_id":"8"},"authorName":"Pankaj Tyagi","authorImageUrl":"https:\/\/corpbiz.io\/learning\/wp-content\/uploads\/2022\/01\/MicrosoftTeams-image-42.jpg","authorDescription":"Pankaj has a diverse experience of writing research papers, blog, and articles during his college time. Earlier, he was working as a tax consultant in a financial firm, but his interest in writing drives him to pursue a career in the writing field.","postViews":7480,"readingTime":4,"_links":{"self":[{"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/posts\/11924"}],"collection":[{"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/users\/22"}],"replies":[{"embeddable":true,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/comments?post=11924"}],"version-history":[{"count":12,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/posts\/11924\/revisions"}],"predecessor-version":[{"id":24736,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/posts\/11924\/revisions\/24736"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/media\/11929"}],"wp:attachment":[{"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/media?parent=11924"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/categories?post=11924"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/tags?post=11924"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}