01 Sep 2021 Small finance bank
Small finance bank
Context:
- The Reserve Bank of India (RBI) has received two more applications for small finance bank licence under the 2019 “on-tap” guidelines.
- An “on-tap” facility would mean that the RBI would accept bank licence applications and award them throughout the year.
About:
Small finance bank:
- They are specialty banks that cater to a specific demographic group of the population.
- Small finance banks will be developed with the purpose of promoting financial inclusion by providing high-tech, low-cost operations that provide savings vehicles and loans to small companies, small and marginal farmers, micro and small industries, and other unorganised sector organisations.
- The Nachiket Mor committee on financial inclusion suggested SFBs.
Scope of activities of SFBs:
- Small finance banks typically engage in fundamental banking services such as deposit acceptance and lending to unserved and underserved groups such as small businesses, small and marginal farmers, micro and small businesses, and unorganised sector entities.
Criteria for setting up SFBs:
- Individuals with 10 years of finance expertise, non-banking financial enterprises (NBFCs), microfinance firms, and community banks are all able to open SFBs.
- Small finance banks must have a minimum paid-up equity capital of Rs. 100 crore.
- The promoter’s minimum initial commitment to the paid-up equity capital must be at least 40%, and it must be gradually reduced to 26% within 12 years of the bank’s beginning of business.
- Small financing banks will be expected to lend 75% of their Adjusted Net Bank Credit to sectors that the Reserve Bank has designated as priority sector lending (PSL).
- According to RBI regulations, SFBs must maintain a Cash Reserve Ratio (CRR) and a Statutory Liquidity Ratio (SLR).
- Loans and advances of up to Rs. 25 lakh should account for at least 50% of its loan portfolio.
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Yojna IAS Current Affairs Team
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