{"id":20465,"date":"2019-06-29T06:22:37","date_gmt":"2019-06-29T06:22:37","guid":{"rendered":"https:\/\/www.legalraasta.com\/blog\/?p=20465"},"modified":"2026-04-07T17:17:00","modified_gmt":"2026-04-07T11:47:00","slug":"small-finance-bank","status":"publish","type":"post","link":"https:\/\/www.legalraasta.com\/blog\/small-finance-bank\/","title":{"rendered":"Small Finance Bank license: Objectives, Rules, Key Challenges"},"content":{"rendered":"\n\n\n<div id=\"ez-toc-container\" class=\"ez-toc-v2_0_73 counter-hierarchy ez-toc-counter ez-toc-grey ez-toc-container-direction\">\n<div class=\"ez-toc-title-container\">\n<p class=\"ez-toc-title\" style=\"cursor:inherit\">Contents<\/p>\n<span class=\"ez-toc-title-toggle\"><a href=\"#\" class=\"ez-toc-pull-right ez-toc-btn ez-toc-btn-xs ez-toc-btn-default ez-toc-toggle\" aria-label=\"Toggle Table of Content\"><span class=\"ez-toc-js-icon-con\"><span class=\"\"><span class=\"eztoc-hide\" style=\"display:none;\">Toggle<\/span><span class=\"ez-toc-icon-toggle-span\"><svg style=\"fill: #999;color:#999\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" class=\"list-377408\" width=\"20px\" height=\"20px\" viewBox=\"0 0 24 24\" fill=\"none\"><path d=\"M6 6H4v2h2V6zm14 0H8v2h12V6zM4 11h2v2H4v-2zm16 0H8v2h12v-2zM4 16h2v2H4v-2zm16 0H8v2h12v-2z\" fill=\"currentColor\"><\/path><\/svg><svg style=\"fill: #999;color:#999\" class=\"arrow-unsorted-368013\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" width=\"10px\" height=\"10px\" viewBox=\"0 0 24 24\" version=\"1.2\" baseProfile=\"tiny\"><path d=\"M18.2 9.3l-6.2-6.3-6.2 6.3c-.2.2-.3.4-.3.7s.1.5.3.7c.2.2.4.3.7.3h11c.3 0 .5-.1.7-.3.2-.2.3-.5.3-.7s-.1-.5-.3-.7zM5.8 14.7l6.2 6.3 6.2-6.3c.2-.2.3-.5.3-.7s-.1-.5-.3-.7c-.2-.2-.4-.3-.7-.3h-11c-.3 0-.5.1-.7.3-.2.2-.3.5-.3.7s.1.5.3.7z\"\/><\/svg><\/span><\/span><\/span><\/a><\/span><\/div>\n<nav><ul class='ez-toc-list ez-toc-list-level-1 ' ><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-1\" href=\"https:\/\/www.legalraasta.com\/blog\/small-finance-bank\/#Introduction\" title=\"Introduction\">Introduction<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-2\" href=\"https:\/\/www.legalraasta.com\/blog\/small-finance-bank\/#The_objective_of_small_finance_banks\" title=\"The objective of small finance banks\">The objective of small finance banks<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-3\" href=\"https:\/\/www.legalraasta.com\/blog\/small-finance-bank\/#Rules_for_Small_Finance_banks\" title=\"Rules for Small Finance banks\">Rules for Small Finance banks<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-4\" href=\"https:\/\/www.legalraasta.com\/blog\/small-finance-bank\/#Key_challenges_faced_by_Small_Finance_Bank\" title=\"Key challenges faced by Small Finance Bank\">Key challenges faced by Small Finance Bank<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-5\" href=\"https:\/\/www.legalraasta.com\/blog\/small-finance-bank\/#Eligibility_Criteria_for_Banks\" title=\"Eligibility Criteria for Banks\">Eligibility Criteria for Banks<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-6\" href=\"https:\/\/www.legalraasta.com\/blog\/small-finance-bank\/#FAQs\" title=\"FAQs\">FAQs<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-7\" href=\"https:\/\/www.legalraasta.com\/blog\/small-finance-bank\/#Conclusion\" title=\"Conclusion\">Conclusion<\/a><\/li><\/ul><\/nav><\/div>\n<h2 class=\"wp-block-heading\" id=\"0-introduction\"><span class=\"ez-toc-section\" id=\"Introduction\"><\/span>Introduction<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p><a href=\"https:\/\/www.finbucket.com\/loan\/small-banks-and-payment-banks\/\" target=\"_blank\" rel=\"noreferrer noopener\">Small finance banks<\/a> are a\ntype of bank that helps those sections which do not get support from other\nbanks.&nbsp;Small finance banks provide basic bank facilities to the economical\nsections which are not supported by the other banks. It helps to provide\nfinancial aid to the <a href=\"https:\/\/www.legalraasta.com\/blog\/areas-growth-small-business\/\" target=\"_blank\" rel=\"noreferrer noopener\">small business units<\/a>, small\nor marginal farmers, micro or small industries. It includes small scale\nbusinesses, the unorganized sector, low-income households, farmers, etc.<\/p>\n\n\n\n<p>Small finance banks are registered\nas a public limited company under <a href=\"https:\/\/www.legalraasta.com\/companies-act-2013\/\" target=\"_blank\" rel=\"noreferrer noopener\">companies act in 2013<\/a>. It is licensed under\nsection 22 of the banking regulation act 1949. It is governed by the provisions\nof the&nbsp;banking regulation act 1949 and the&nbsp;reserve bank of India act\n1934.&nbsp;Reserve bank of India wants to help the weaker sections of the\neconomy ie rural and semi-urban areas.<\/p>\n\n\n\n<p>Small finance banks let their\ndepositors invest in current accounts and savings accounts, fixed deposits,\ncommercial papers, refinancing, etc. On saving accounts they offer a 6-7%\ninterest rate. on fixed accounts, they offer a 9% interest rate and so on.<\/p>\n\n\n\n<p>Small finance banks provide two\ntypes of loans that are individual and group loans. The group loans are offered\non joint liability. If a member of the group fails to pay the amount then the\nwhole group is liable for the loan.<\/p>\n\n\n\n<p>Small finance groups require prior approval every time from the RBI when they want to establish a new branch.&nbsp;Small Finance Banks also require to extend 75% of their Adjusted Net Bank Credit (ANBC) to the classified sectors under the priority sector lending (PSL) by the RBI.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\" id=\"1-the-objective-of-small-finance-banks\"><span class=\"ez-toc-section\" id=\"The_objective_of_small_finance_banks\"><\/span>The objective of small finance banks<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<ul class=\"wp-block-list\"><li>Its main and foremost purpose is to provide an\n     institutional mechanism for promoting savings among the rural &amp;\n     semi-urban sections of society.<\/li><li>It helps in the supply of credit to small business\n     units; small &amp; marginal farmers; micro &amp; small industries and other\n     unorganized sectors.<\/li><\/ul>\n\n\n\n<h2 class=\"wp-block-heading\" id=\"2-rules-for-small-finance-banks\"><span class=\"ez-toc-section\" id=\"Rules_for_Small_Finance_banks\"><\/span>Rules for Small Finance banks<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<ul class=\"wp-block-list\"><li>Small finance banks will perform basic banking services\n     of accepting the deposits and lending money to backward sections.<\/li><li>It will provide banking facilities to boost saving\n     habits among rural people.<\/li><li>These small finance banks are established as a public\n     limited company. They may be promoted either by individuals, corporate,\n     trust or societies.<\/li><li>These are governed by the provisions of\n     the&nbsp;Reserve Bank of India act 1934 and the Banking Regulation Act\n     1949.<\/li><li>Small Finance Banks cannot borrow funds from the\n     Reserve Bank of India, unlike any other scheduled bank.<\/li><\/ul>\n\n\n\n<h2 class=\"wp-block-heading\" id=\"3-key-challenges-faced-by-small-finance-bank\"><span class=\"ez-toc-section\" id=\"Key_challenges_faced_by_Small_Finance_Bank\"><\/span>Key challenges faced by Small Finance Bank<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<ul class=\"wp-block-list\"><li>It is difficult to maintain an ideal technology\n     platform which will be beneficial for both the customers in ease of\n     transactions and to the bank as a reduction in cost.<\/li><li>Earlier Small Finance Banks were functioning as MFIs (<a href=\"https:\/\/www.legalraasta.com\/blog\/nbfc-mfi-directions-in-india\/\" target=\"_blank\" rel=\"noreferrer noopener\">Microfinance institutions<\/a>),\n     Small financial Banks did not handle deposits before.<\/li><li>It is essential for them to invest in the\n     infrastructure which enables deposits through ATM network and partnering\n     with banks.<\/li><li>Capital adequacy ratio, cash reserve ratio (CRR) and\n     statutory liquidity ratio (SLR) will be an aspect for managing.&nbsp;\n     Which will result in reduced earnings until SFBs develop a substantial\n     depositor base for managing them.<\/li><\/ul>\n\n\n\n<h2 class=\"wp-block-heading\" id=\"4-eligibility-criteria-for-banks\"><span class=\"ez-toc-section\" id=\"Eligibility_Criteria_for_Banks\"><\/span>Eligibility Criteria for Banks<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<ul class=\"wp-block-list\"><li>Min. Paid Up Capital Rs. 100 Crores<\/li><li>Promoters minimum initial contribution to above 40%(to\n     be bought to 26% within 12 years of commencement)<\/li><li>Foreign Shareholding as per FDI policy for private\n     banks<\/li><li>Subjected to all prudential norms and regulations of\n     commercial banks<\/li><li>Extend 75% of ANBC to the sectors classified as PSL<\/li><li>At least 50% of its loan portfolio should constitute of\n     loan and advances up to 25 lakhs<\/li><\/ul>\n\n\n\n<h2 class=\"wp-block-heading\" id=\"5-faqs\"><span class=\"ez-toc-section\" id=\"FAQs\"><\/span>FAQs<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p><strong>Q1-Why Small Finance Banks are\nneeded?<\/strong><\/p>\n\n\n\n<p>Small finance bank<strong>s<\/strong>&nbsp;can\nplay an important role&nbsp;in the supply of credit to micro\nand&nbsp;small&nbsp;enterprises, agriculture and banking services&nbsp;in\nunbanked and under-banked regions in the country. Therefore RBI decided to\nlicense new \u201csmall finance banks\u201d in the private sector.<\/p>\n\n\n\n<p><strong>Q2-Are payments banks scheduled\nbanks?<\/strong><\/p>\n\n\n\n<p>Payments banks&nbsp;is a new model\nof&nbsp;banks&nbsp;conceptualized by the Reserve&nbsp;Bank&nbsp;of India (RBI).\nThese&nbsp;banks&nbsp;can accept a restricted deposit, which is currently\nlimited to \u20b9100,000 per customer and may be increased further. These banks&nbsp;cannot\nissue loans and credit cards<\/p>\n\n\n\n<p><strong>Q3-What is the difference between\nsmall finance banks and commercial banks?<\/strong><\/p>\n\n\n\n<p>These&nbsp;banks&nbsp;can do almost\neverything that a normal&nbsp;commercial bank&nbsp;can do but at a much smaller\nscale. One such&nbsp;difference&nbsp;is that a payment&nbsp;bank&nbsp;has a\nlimit of 1 lakh on deposit per account;&nbsp;small finance banks&nbsp;do not\nhave a limit. Payments banks&nbsp;cannot lend, while&nbsp;small finance\nbanks&nbsp;can give loans.<\/p>\n\n\n\n<p><strong>Q4-How many private banks are there\nin India?<\/strong><\/p>\n\n\n\n<p>In all, there are&nbsp;21\nprivate&nbsp;sector banks in India. Out of which there are&nbsp;13&nbsp;old\nprivate sector banks that were present even before nationalization 1969 and are\nstill autonomous and private which are, Catholic Syrian Bank, City Union Bank,\netc.<\/p>\n\n\n\n<p><strong>Q5-Is Jana bank small finance bank\nlisted?<\/strong><\/p>\n\n\n\n<p>Jana Small Finance Bank, formerly Janalakshmi&nbsp;Financial&nbsp;Services, is looking at listing&nbsp;its shares by March 2021. It started operations on March 28. As a&nbsp;microfinance&nbsp;institution, Bengaluru-based Janalakshmi raised Rs 16 billion as capital in 2017-18.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\" id=\"6-conclusion\"><span class=\"ez-toc-section\" id=\"Conclusion\"><\/span>Conclusion<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>Thus we can say that small finance\nbanks&nbsp;help those sections which do not get support from other\nbanks.&nbsp;Small finance banks provide basic bank facilities to the economical\nsections which are not supported by the other banks. They are important for the\ndevelopment of the weaker sections as they provide the much needed financial\nhelp to them.<\/p>\n\n\n\n<p>For further more information\nregarding&nbsp;&nbsp;<a href=\"https:\/\/www.legalraasta.com\/nbfc-registration\/\" target=\"_blank\" rel=\"noreferrer noopener\">NBFC registration<\/a>,&nbsp;<a href=\"https:\/\/www.legalraasta.com\/blog\/areas-growth-small-business\/\" target=\"_blank\" rel=\"noreferrer noopener\">small business units<\/a>&nbsp;you\ncan visit our website:&nbsp;<a href=\"https:\/\/www.legalraasta.com\/\" target=\"_blank\" rel=\"noreferrer noopener\">Legal Raasta<\/a>. Our employees\nwill help you and clear your doubts and answer your inquiries happily.<\/p>\n\n\n\n<p>Hurry up! And give us a ring at<strong> 8750008585<\/strong> and you can send your query on\nEmail:&nbsp;<a href=\"mailto:contact@legalraasta.com\" target=\"_blank\" rel=\"noreferrer noopener\">contact@legalraasta.com&nbsp;<\/a><\/p>\n\n\n\n<p>Related Articles:<\/p>\n\n\n\n<p><a href=\"https:\/\/www.legalraasta.com\/blog\/nbfc-participation-in-insurance-business\/\" target=\"_blank\" rel=\"noreferrer noopener\">NBFC participation in insurance\nbusiness<\/a><\/p>\n\n\n\n<p><a href=\"https:\/\/www.legalraasta.com\/blog\/nbfc-nidhi-company-microfinance-company\/\" target=\"_blank\" rel=\"noreferrer noopener\">NBFC v\/s Nidhi Company v\/s Micro\nfinance companies<\/a><\/p>\n\n\n\n<p><a href=\"https:\/\/www.legalraasta.com\/blog\/csr-applicability\/\" target=\"_blank\" rel=\"noreferrer noopener\">What is a small company in India<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"<p>Introduction Small finance banks are a type of bank that helps those sections which do not get support from other banks.&nbsp;Small finance banks provide basic bank facilities to the economical sections which are not supported by the other banks. It helps to provide financial aid to the small business units, small or marginal farmers, micro or [&hellip;]<\/p>\n","protected":false},"author":15,"featured_media":20491,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[141],"tags":[3426,174,3316,3427,3320],"class_list":["post-20465","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-nbfc","tag-micro-finance-institutions","tag-nbfc","tag-non-banking-financial-company-micro-finance-institution-nbfc-mfi","tag-small-business-units","tag-small-finance-bank"],"acf":[],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v27.3 - https:\/\/yoast.com\/product\/yoast-seo-wordpress\/ -->\n<title>Small Finance Bank | Introduction | Objectives | LegalRaasta<\/title>\n<meta name=\"description\" content=\"Small finance banks are a type of niche banks.\u00a0Small finance banks provides 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