Page 36 - Banking Finance February 2018

ARTICLE

Capital requirement: objectives for which it is set up, shall primarily undertake
basic banking activities of acceptance of deposits and lending
The minimum paid-up equity capital for small finance banks
to unserved and underserved sections including small
shall be Rs. 100 crore.
business units, small and marginal farmers, micro and small
industries and unorganised sector entities.
Promoter's contribution:
The promoter's minimum initial contribution to the paid-up SFBs can also provide remittance services, which will further
equity capital of such small finance bank shall at least be 40 increase the competition in the sector to which payments
per cent and gradually brought down to 26 per cent within banks are also recent entrants. The SFBs can also distribute
12 years from the date of commencement of business of the simple financial products, including insurance, mutual funds
bank. and pension products and one can expect further spread of
these financial products. SFBs will have an opportunity for
Foreign shareholding: vertical penetration with an expanded range of products,
The foreign shareholding in the small finance bank would unlike the NBF-MFIs that expand horizontally with limited
be as per the Foreign Direct Investment (FDI) policy for number of products.
private sector banks as amended from time to time.
This will also allow SFBs to create a judicious mix of high and
Prudential norms : low value customers, thus strengthening the business
case.While there is significant market potential and
1) The small finance bank will be subject to all prudential
opportunities for NBFC-MFIs turned SFBs they have to be
norms and regulations of RBI as applicable to existing cognisant of the costs associated with the transformation,
commercial banks including requirement of and the challenges and risks that it presents.
maintenance of Cash Reserve Ratio (CRR) and Statutory
Liquidity Ratio (SLR). No forbearance would be provided Opportunities and Role
for complying with the statutory provisions.
1) RBI has granted "in-principle" approval to 10 applicants
2) The small finance banks will be required to extend 75 to set up small finance banks under the "Guidelines for
per cent of its Adjusted Net Bank Credit (ANBC) to the
Licensing of Small Finance Banks in the private sector"
sectors eligible for classification as priority sector
(Guidelines) issued on November 27, 2014. Eight out of
lending (PSL).
the ten institutions who have been granted provisional
3) At least 50 per cent of its loan portfolio should licenses are Micro Financial Institutions (MFIs) that have
constitute loans and advances of up to Rs. 25 lakh. a track record of providing scalable microcredit services.

Transition path: RBI, apart from considering parameters such as financial
If the small finance bank aspires to transit into a universal
bank, such transition will not be automatic, but would be
subject to fulfilling minimum paid-up capital / net worth
requirement as applicable to universal banks, its satisfactory
track record of performance as a small finance bank and the
outcome of the Reserve Bank's due diligence exercise.

Small Finance Bank's Role - Opportuni-

ties and Challenges
In the absence of desired results from Regional Rural Banks
( RRBs) in reaching the unserved and underserved mass ,
the small finance bank (SFBs), in furtherance of the

36 | 2018 | FEBRUARY | BANKING FINANCE

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