Operations and Criteria for SFBs

Operations and Criteria for SFBs

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The primary duties of the small finance banks will be to accept deposits and lend to unserved and underserved groups, such as small businesses, marginal farmers, micro and small industries, and unorganized sector entities. The activities of small finance banks won't be restricted in any way. Customers can buy forex, mutual funds, insurance, and pensions from small finance banks. They are capable of becoming a full-fledged bank. However, the SFBs are unable to make substantial loans, float subsidiaries, or deal in sophisticated products.

Criteria for starting SFBs - SFBs can be started by people or businesses with 10 years of experience in finance, Non-Banking Financial Companies (NBFCs), microfinance companies, and local area banks.

• Small finance banks must have a minimum equity capital of Rs. 100 crore.

• The promoter's minimum initial contribution to the paid-up equity capital of a small finance bank must be at least 40%, and it must gradually decrease to 26% within 12 years of the bank's opening.

• The Foreign Direct Investment (FDI) policy for private sector banks, as amended from time to time, would govern the foreign ownership of the small finance bank.

• The Reserve Bank will require the small finance banks to give 75% of their Adjusted Net Bank Credit (ANBC) to sectors that are eligible for priority sector lending (PSL).

• According to RBI guidelines, SFBs are required to keep their Statutory Liquidity Ratio (SLR) and Cash Reserve Ratio (CRR) constant.

• Loans and advances of up to Rs. 5 should make up at least 50% of its loan portfolio. 25 lakh.