Page 32 - Banking Finance August 2025

ARTICLE

holistic approach to inclusive and sustainable growth. This Key regulatory requirements for Small
will encompass areas such as education, skill development,
job creation, and, most importantly, further deepening fi- Finance Banks (SFBs):
nancial inclusion. The role of Small Finance Banks in this Parameters Requirement
context is far from "small."
Listing Requirement Once the SFB reaches a net
worth of Rs. 500 crore, listing
In fact, their contribution is highly significant, as they are piv-
will be mandatory within three
otal in extending financial services to underserved populations,
years
promoting entrepreneurship, and driving inclusive growth, all
of which are essential for India's transition to a high-income Capital Adequacy Norm 15% (under Basel II standar-
economy. Since their inception, SFBs have shown impressive dised approach for credit risk)
growth, now accounting for 1.18% of total banking assets as Tier I Capital 7.5%
of March 2024, up from just 0.44% in March 2018. Over the PSL Targets 75% of Adjusted net bank cred-
last five years, the deposit base of SFBs has grown at a com- its (ANBC)
pounded annual growth rate (CAGR) of 32%, while net ad- CRR/SLR Requirements CRR 4% & SLR - 18%
vances have expanded at a CAGR of 26%.
Minimum Net Worth Rs 200 Crore,
Operational Scope and Activities of If earlier Urban Co-operative
Bank (UCBs) then Rs 100 Crore
Small Finance Banks: till initial 5 years and then Rs
Primarily focus on basic banking services, including ac- 200 Crore.
cepting deposits and lending to underserved and un- Single borrower and Single borrower exposure limit
served sectors, such as small business units, marginal group exposure limit of 10% of capital
farmers, micro and small industries, and entities in the Group exposure limit of 15% of
unorganized sector. capital
The bank may also offer non-risk-sharing, simple finan- Ticket size norms Minimum 50% of the portfolio
cial services that do not require commitment of its own comprising single-borrower
funds. These services may include the distribution of mu- loans of up to Rs. 25 lakh
tual fund units, insurance products, pension schemes, etc. Branch expansion Opening at least 25% of its

The small finance bank may also apply to become a branches in unbanked rural
Category II Authorized Dealer for foreign exchange busi- centres
ness to meet client needs. After operating for at least
two years as a Category II Authorized Dealer, it will be Path for SFBs to become Universal Banks:
eligible to apply for a Category I Authorized Dealer li- To be eligible for conversion into a Universal Bank, the RBI
cense, subject to fulfilling the eligibility criteria.
stipulates some conditions as below:
Small finance banks will have general permission to es- Only listed SFBs will qualify.
tablish banking outlets starting from the commence- Having a minimum net worth of Rs. 1,000 crore as of
ment of their business, as per the RBI circular. How-
the end of the previous quarter (audited).
ever, at least 25% of their banking outlets must be set
up in unbanked rural areas. The SFBs must have a scheduled status

There will be no restrictions on the areas in which small Satisfactory track record of at least five years.
finance banks can operate. Having gross non-performing assets (NPA) and net NPA
Small finance banks are prohibited from setting up subsid- of less than or equal to 3% and 1%, respectively, in the
iaries to engage in non-banking financial services activities. last two financial years.
The bank must include the term "Small Finance Bank" Must have reported a net profit in the last two finan-
in its name to distinguish it from other types of banks. cial years.

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