Under Companies Act 2013,Small Finance Banks are registered as public limited company and are licensed under section 22 of the Banking Regulation,1949 and primarily governed by Banking Regulation Act,1949 and RBI Act,1934. Small Finance Banks were introduced with the purpose to serve rural and semi-urban areas like small businesses, unorganized areas, etc. They make money by collecting it from current and saving account depositors, fixed depositors, etc. Every small finance banks needs approval from RBI before opening of any new branch. It should extend 75% of its ANBC to the classified sectors under PSL by the RBI.

 

Objectives

  • Provide framework to promote rural and semi-urban savings
  • Provide credit in local areas to carry out economic activities
  • Provide saving vehicles to the underprivileged sections of the society
  • By using hi-tech, low-cost technology, supply of credit to small businesses

 

Eligibility Criteria for Banks

  • Min. Paid Up Capital Rs. 100 Crores
  • Promoters min. Initial contribution to above 40%(to be bought to 26% within 12 years of commencement)
  • Foreign Shareholding as per FDI policy for private banks
  • Subjected to all prudential norms and regulations of commercial banks
  • Extend 75% of ANBC to the sectors classified as PSL
  • At least 50% of its loan portfolio should constitute of loan and advances upto 25 lakhs