- Small Finance Banks are a category of scheduled commercial banks that primarily cater to the financial needs of small business units, micro and small industries, and unorganised sector entities.
- SFBs are regulated by the RBI under the RBI Act of 1934 and the Banking Regulation Act of 1949.
- An SFB is established as a private limited company under the Companies Act of 2013.
- Small Finance Banks offer basic banking services such as Savings Accounts, Current Accounts, Fixed Deposits, Recurring Deposits, Loans, etc. (Payment banks & NBFCs cannot Lend).
- SFBs are subject to all prudential norms and regulations of RBI applicable to existing commercial banks, including maintenance of Cash Reserve Ratio (CRR) and Statutory Liquidity Ratio (SLR).
- The minimum paid-up equity capital requirement is INR 200 crores, except for SFBs converted from Urban Cooperative Banks, which require only INR 100 crore.
- SFBs can be promoted by individuals, corporates, trusts, or societies.
- SFBs are required to extend 75% of the credit to sectors eligible for classification as priority sector lending by the RBI (Commercial bank 40%).
- At least 25% of the branches of any small finance bank should be located in rural areas where banking services are absent or not prevalent.
- 50 % of loans extended by them are to be less than INR 25 lakhs.
- SFBs can undertake non-risk-sharing financial services such as the distribution of mutual fund units, insurance products, pension products, etc.
- SFBs can set up dealerships in the foreign exchange business.
- Existing NBFCs, microfinance institutions, and local area banks can opt for conversion into Small Finance Banks.
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