SMALL FINANCE BANKS 

WHAT ARE SMALL FINANCE BANKS IN INDIA ?

NEW SMALL FINANCE BANKS ON THE WAY

UNITY SMALL FINANCE BANK    BEGINS ITS OPERATIONS 

Dated  02.11.2021 : Reserve Bank of India (RBI) had issued a small finance bank (SFB)  licence to   Unity Small finance Bank   in June 2021 .  It  is   floated by    the Centrum Group-BharatPe consortium. It has begun its operations yesterday  .  The  new  bank is expected  to take over the assets and liabilities of the beleaguered PMC Bank which is  put under section 35a OF RBI Act restricting its operations   . 
 
 The  Unity  SFB will have  to  be guided by the directions and timelines of the RBI on the amalgamation of Punjab & Maharashtra Co-Operative Bank Limited with them .  Centrum consortium was  one of the bidders   that had    offered  to participate  in reconstruction of the bank, in response to the Expression of Interest (EOI) dated November 3, 2020 floated by the bank. RBI and PMC Bank  have been   engaging with  them   in order to secure best possible terms for the depositors and other stakeholders of PMC Bank while ensuring long term viability of the reconstructed entity. 

Unity Bank will be a digital first bank with a business model of collaboration and open architecture, uniting all   its stakeholders to deliver a seamless digital experience. The Bank commences operations with Centrum’s successful MSME and Micro Finance businesses and teams, a capital infusion of approx. Rs 1,100 crores, total assets of about Rs 2400 crores, active customer base of over 2 lakhs, 145 offices    including a branch in Centrum House, Mumbai, getting off to a strong start. 

About centrum Group   :  The group was established in 1997   . Centrum has diversified fee businesses and a lending platform for institutions and  individuals. Institutional services include Investment Banking, Mid-corporates & SME credit and Broking to  FIIs, Pension Funds, Indian Mutual Funds, Domestic Institutions etc. It also provides MSME credit, Wealth  Management Servicesto HNIs and Family Offices, Affordable Housing finance in tier 2 & 3 cities, Micro Finance  loans and Retail Broking. Its Asset Management business offers funds across Private Debt and Venture Capital.

About Bharat Pe  : BharatPe was co-founded by Ashneer Grover and Shashvat Nakrani in 2018 with the vision of making financial
inclusion a reality for Indian merchants. In 2018, BharatPe launched India’s first UPI interoperable QR code, the first zero MDR payment acceptance service. In 2020, post-Covid, BharatPe also launched India’s only zero  MDR card acceptance terminals – BharatSwipe. Currently serving over 70 lakh merchants across 140+ cities,  the company is a leader in UPI offline transactions, processing 11 crores+ UPI transactions per month  (annualized Transaction Processed Value of US$ 11+ Bn). The company has already facilitated disbursement  of loans totaling to over Rs. 2,200 crores to its merchants, since launch. BharatPe’s POS business processes  payments of over Rs. 1,400 crores/ month. BharatPe has raised close to US$ 600 million in equity and debt,  till date. The company’s list of marquee investors includes Tiger Global, Dragoneer Investment Group, Steadfast Capital, Coatue Management, Ribbit Capital, Insight Partners, Steadview Capital, Beenext, Amplo
and Sequoia Capital. In June 2021, the company announced the acquisition of PAYBACK India, the country’s  largest multi-brand loyalty program company with 100 million+ members. In June 2021, it was also given an  in-principle approval by Reserve Bank of India to establish a Small Finance Bank, in partnership with Centrum  Financial Services Limited (Centrum), the established and profitable NBFC arm of the Centrum Group. 

​Source : websites of respective companies . 

RBI   RECEIVES  APPLICATIONS FOR NEW SMALL FINANCE BANKS  : 

Dated   01.09.2021 :     Reserve Bank of India has received applications under the Guidelines for ‘on tap’ Licensing of Small Finance Banks dated December 5, 2019 from the following applicants –

1. VSoft Technologies Private Limited
2. Calicut City Service Co-operative Bank Limited
3. Shri Akhil Kumar Gupta
4. Dvara Kshetriya Gramin Financial Services Private Limited 
   
5. Cosmea Financial Holdings Private Limited
6. Tally Solutions Private Limited  

In " on-tap " licensing   . an applicant can apply to RBI on any time .  The applications will go through the following   procedure before they get a licence by RBI : 
​

• At the first stage, the applications will be screened by RBI to assess the eligibility of the applicants, vis-à-vis the criteria laid down in these guidelines. RBI may apply additional criteria to determine the suitability of applications, in addition to the ‘fit and proper’ criteria prescribed at paragraph 3 above. Thereafter, the applications will be referred to a Standing External Advisory Committee (SEAC) to be set up by RBI.
• The SEAC will comprise of eminent persons with experience in banking, financial sector and other relevant areas. The tenure of the SEAC will be for three years.
• The SEAC will set up its own procedures for screening the applications. The SEAC will meet periodically, as and when required. The Committee will reserve the right to call for more information as well as have discussions with any applicant/s and seek clarification on any issue as may be required by it. The Committee will submit its recommendations to RBI for consideration.
• The Internal Screening Committee (ISC), consisting of the Governor and the Deputy Governors will examine all the applications. The ISC will also deliberate on the rationale of the recommendations made by the SEAC and then submit its recommendations to the Committee of the Central Board (CCB) of RBI for the final decision to issue ‘in-principle approval’.
• The validity of the ‘in-principle approval’ issued by RBI will be 18 months from the date of granting ‘in-principle approval’ and would thereafter lapse automatically. Therefore, the -applicant will have to obtain the license within a period of 18 months of granting the ‘in-principle approval’.
• After issue of the ‘in-principle approval’ for setting up of a small finance bank, if any adverse features are noticed regarding the Promoters or the companies / entities with which the Promoters are associated and the group in which they have interest, the RBI may impose additional conditions and if warranted, may withdraw the ‘in-principle approval’.
• The names of applicants that are found suitable for grant of in-principle approval will also be placed on the RBI website.
• An applicant who has not been found suitable for issue of license will be advised of the Reserve Bank’s decision. Such applicants will not be eligible to make an application for a banking license for a period of three years from the date of that decision.
• Applicants aggrieved by the decision of the Committee of the Central Board can prefer an appeal against the decision to the Central Board of Directors, within one month from the date of receipt of communication from RBI relating to the application not being considered as at paragraph 16 (h) above.


• Who  can apply for SFB Licence ? 
  
  1. Resident individuals/professionals (Indian citizens), singly or jointly, each having at least 10 years of experience in banking and finance at a senior level; 
  2. Companies and Societies in the private sector, that are owned and controlled by residents (as defined in FEMA Regulations, as amended from time to time), and having successful track record of running their businesses for at least a period of five years, will be eligible as promoters to set up small finance banks.
  3. Existing Non-Banking Finance Companies (NBFCs), Micro Finance Institutions (MFIs), and Local Area Banks (LABs) in the private sector, that are controlled by residents , and having successful track record of running their businesses for at least a period of five years, can also opt for conversion into small finance banks
  
  Who are not eligible to apply  ? 
  
  1. Joint ventures by different promoter groups for the purpose of setting up small finance banks would not be permitted. 
  
  2. Proposals from public sector entities and large industrial house / business groups, including from NBFCs promoted by them, autonomous boards / bodies set up under enactment of a State legislature, state financial corporations, subsidiaries of development financial institutions, will not be entertained. For the purpose of these guidelines, a Group with assets of Rs.5,000 crore or more with the non-financial business of the group accounting for 40 per cent or more in terms of total assets / gross income, will be treated as a large industrial house / business groups. 

• What   business a   SFB  can do ?    
•  The small finance bank can  undertake basic banking activities of acceptance of deposits and lending to unserved and underserved sections including small business units, small and marginal farmers, micro and small industries and unorganised sector entities. It can also undertake other non-risk sharing simple financial services activities, not requiring any commitment of own fund, such as distribution of mutual fund units, insurance products, pension products, etc. with the prior approval of the RBI and after complying with the requirements of the sectoral regulator for such products. The small finance bank can also become a Category II Authorised Dealer in foreign exchange business for its clients’ requirements.  
• Minimum Capital required :  The minimum paid-up voting equity capital for small finance banks shall be Rs.200 crore,

 JANA SMALL FINANCE BANK  ALLOWS CUSTOMERS TO CHOOSE THEIR ACCOUNT NUMBER : 

Dated  12.05.2021 : Bengaluru    based  Jana Small Finance Bank  has come out with a  new feature   for its new savings bank and current account  customers   and  they can choose   last 10   numbers   in the account numbers to be allotted to  them by the bank  .  While opening  an account   , Customers can choose any 10 numbers of their choice  and will be allotted by the bank as    the last 10 digits of the  account  number to be opened  , subject to availability  of the number in their system . 

​For further details , you may visit  bank's website 

           Small finance banks  are a type of niche banks in India. Banks with a small finance bank license can provide basic banking service of acceptance of deposits and lending. The aim behind these to provide financial inclusion sections of the economy not being served by other banks .          

Basically   Small Finance banks  would help  small business units, small and marginal farmers, micro and small industries and unorganised sector entities in India.     On 16th September 2015 ,   Reserve Bank of India has   given licence  or in -principle approval  to 10 entities for    opening such banks    out of the 72 applications received . According to a statement by RBI, the in-principle approval granted  is  valid for 18 months to enable the applicants to comply with the requirements under the Guidelines and fulfil other conditions as may be stipulated by them

The ten  companies are 

1.  Au Financiers (India) Limited, Jaipur 
2. Capital Local Area Bank Limited, Jalandhar 
3. Disha Microfin Private Limited, Ahmedabad 
4. Equitas Holdings P Limited, Chennai 
5. ESAF Microfinance and Investments Private Limited, Chennai 
6. Janalakshmi Financial Services Private Limited, Bengaluru 
7. RGVN (North East) Microfinance Limited, Guwahati 
8. Suryoday Micro Finance Private Limited, Navi Mumbai 
9. Ujjivan Financial Services Private Limited, Bengaluru 
10. Utkarsh Micro Finance Private Limited, Varanasi.
    
    

LICENCES FOR SMALL FINANCE BANKS

  Small Finance  Banks  are licensed  and   regulated by    Reserve Bank of India . The minimum  capital requirements for such banks is Rs 100  crores   .  Promoter stake must be at 40 percent in first 5 years - Promoter stake to be brought down to 30 percent within 10 yrs, 26 percent  in 12 years  .Joint ventures are not permitted. Foreign share holding will be allowed in these banks as per the rules for FDI in private banks in India.  Listing mandatory within 3 years of reaching Rs. 500 crore net worth .

 Guidelines issued by   RBI  for operations of the banks  are as  follows :

1.  75 percent of Adjusted Net Bank Credit to be extended to priority sector 
2.  50 percent of loan portfolio to constitute loans & advances of upto Rs 25 lakh 
3.  25   percentage of  branches must be in unbanked rural areas 
4.  Maximum loan size & investment limit to single obligor restricted to 10 percent of capital funds 
5.  Maximum loan size & investment limit to a group restricted to 10 percent of capital funds 
6.  CRR, SLR requirement as applicable to existing commercial banks from Day 1

 The draft guidelines   issued by  Reserve  Bank of India on Payment Banks  is available on their website .
 To reach the guidelines . CLICK HERE   . Further RBI , on 06.07.2017 , has issued  compendium of Guidelines to Small Finance Banks   which can be accessed by CLICKING HERE 

SHIVALIK SMALL FINANCE BANK    BEGINS ITS  OPERATIONS : 

Dated 27.04.2021  : UP headquartered Shivalik Small Finance Bank has begun its banking operations yesterday  . It was given license in January 2021  by Reserve Bank of India   ( RBI )   . 

  Its parent body   is a  multistate co-operative society  operating in Uttar Pradesh , Delhi   & Madhyapradesh   which is doing its business  since 1998  .  Its headquarters  and Registered office is in Sahranpur , UP . ​The bank has 31 branches and 57 ATMs .  

Other Details :
IFSC CODE :    SMCB000 1001 till 1031
Telefax : 0120-4060000      email :  [email protected]
  website :  www.shivalikbank.com    Facebook page  : www.facebook.com/shivalikbank  

As of 31st , March 2020 , the bank had a  deposit of  Rs 1,139 crores and advance of Rs 718 crores .   

​Shivalik Small Finance Bank is the 11th bank  small finance bank operating in India . 

WHAT WE CAN EXPECT FROM SMALL FINANCE  BANKS ?

  Licences for  Small Finance Banks   are now issued to existing micro finance institutions   which are already in the business of   lending to   small and tiny entities .  But once they establish small finance  banks , they can increase their  loan size  to their customers . And they can also  receive deposits , distribute mutual funds  , insurance products  etc .   Hence   we  can expect competition to increase in the   rural banking  ans existing banks have to gear up to face it .  

As per  RBI licence , new  small finance  banks were  to be set up within 18 months .    Now all the ten licencees  have opened their banks 

LIST OF ACTIVE SMALL FINANCE BANKS IN INDIA

     Presently Following Small  Finance Banks   have started operation . 
    ( CLICK ON THE NAME OF THE BANK TO GO TO THEIR WEBSITE   )

1.  AU SMALL FINANCE BANK    :    Licence given by  RBI  to Au Financiers (India) Limited, Jaipur   .

2. CAPITAL SMALL FINANCE BANK  : ​   Licence given by  RBI  to   Capital Local Area Bank Limited, Jalandhar 

​3. SURYODAY SMALL FINANCE BANK  : ​ Licence given by  RBI  to Suryoday Micro Finance Private Limited, Navi Mumbai  

4. UJJIVAN SMALL FINANCE BANK  :  ​Licence given by  RBI   to  Ujjivan Financial Services Private Limited, Bengaluru  . 

5. UTKARSH SMALL FINANCE BANK    :   ​​Licence given by  RBI   to  Utkarsh Micro Finance Private Limited, Varanasi.  

6 EQUITAS SMALL FINANCE BANK   :   ​​​Licence given by  RBI   to   Equitas Holdings P Limited, Chennai 

7 ESAF SMALL FINANCE BANK   :      ​Licence given by  RBI   to   ESAF Microfinance and Investments Private Limited, Chennai  . 

​8  JANA SMALL FINANCE BANK    :   ​Licence given by  RBI   to   Janalakshmi Financial Services Private Limited, Bengaluru   

9 . FINCARE SMALL FINANCE BANK   :  ​Licence given by  RBI   to  Disha Microfin Private Limited, Ahmedabad ​  

10 : NORTH EAST SMALL FINANCE BANK : ​  ​Licence given by  RBI   to RGVN (North East) Microfinance Limited, Guwahati 

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DEPOSIT RATES OF SMALL FINANCE BANKS

  Generally small finance banks are paying higher FD interest rates compared to commercial banks  , public sector or private banks   .The highest yield on Bank Deposits   for one year matirity  come   generally  from small finance banks .    Utkarsh    Small finance Bank  pays  7.75 %  for 1 year public deposit  and 8.25 % for senior citizens    . Similarly for 5 year deposits , Small finance banks pay    between  6.50  % to 9.00 % for public and 7.00 % to  9.25  %  for senior  citizens  , which are generally higher than other  banks .  Suryuodaya SF Bank pays highest of 9 %  for the public and 9.25 % for the senior citizens . 

For complete details of interest you can receive   Small Finance Banks ,  click here 

TO KNOW ABOUT PAYMENT BANKS  , CLICK HERE 

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