Small Finance Bank – Jan 2021
Small Finance Bank Details
| Implemented on | September 16, 2015 |
| Approved By | Reserve Bank of India |
| Minimum Capital Requirement | ₹ 100 Cr |
| Products |
What are Small Finance Banks?
Small Finance Banks are financial institutions that intend to fund the financial needs of the underprivileged sections through basic banking activities of lending and deposits. These include small business units set in rural areas, small and marginalized farmers, unorganized entities, and micro and small industries. The small finance banks were set to reach out to the unbanked population in the remote and unprivileged areas.
Small Finance Banks List
Small Finance Banks (SFBs) was made public in India on September 16, 2015, after the Reserve Bank of India approved to set up small financial institutions, called small finance banks, as per the Union Budget of 2014-2015. Some of the popular Small Finance Banks in India are listed as follows:
| Small Finance Bank | FD Interest Rates | RD Interest Rates |
|---|---|---|
| AU Small Finance Bank | 3.75% - 7.25% | 5.75% - 8.03% |
| Ujjivan Small Finance Bank | 3.05% - 7.00% | 6.25% - 8.00% |
| Equitas Small Finance Bank | 3.60% - 7.50% | 7.00% - 8.60% |
| Jana Small Finance Bank | 2.50% - 7.75% | 6.75% - 9.10% |
| ESAF Small Finance Bank | 4.50% - 7.00% | 6.00% - 8.50% |
Features of Small Banks
- It is mandatory for Small Finance Banks to set up at least 25 percent of its branches in the unbanked remote and rural areas.
- The SFBs require a minimum capital requirement of ₹ 100 Cr.
- The Small Finance Banks are subjected to follow the rules and regulations set by the RBI. These rules include maintenance of the CRR or cash reserve ratio, and STR or statutory liquidity ratio.
- The Small Finance Banks can even take up activities like distribution of mutual funds, insurance products, and pension products, but only after approval from RBI.
- Also, SFBs can engage in foreign exchange business as per their customer’s needs.
Products offered by Small Finance Banks
All Small Finance Banks deal with basic lending and deposit activities, like loans and deposits. However, what makes these products stand out is that SFBs are required to focus their products more towards the priority sector, which includes facilitating funds to poor people for housing, lending for agriculture and allied activities, funding to micro and small industries, and weaker sections of the society. These directives are regulated by the RBI, that allows Small Finance Banks to deal with the following products:
- Deposits- All Small Finance Banks provide Fixed and Recurring Deposits. Interest rates charged by these banks on Fixed Deposit and Recurring Deposit is comparatively higher than that of regular banks. Thus, a Fixed Deposit by Small Finance Bank can earn you more revenue.
- Loans- All Small Finance Banks deal with retail loan products like Personal, Housing, and Auto loans. These Banks are required to extend 75% of their Adjusted Net profit for the priority sector. In addition to that, 50% of the loans lent must be up to ₹ 25 Lakh.
- Other Products- Small Finance Banks deal in other products as well such as Distribution of Mutual Funds, Pension Products, Insurance Products, Foreign Exchange, Debit Cards, Savings and Current Account Deposits
How are Small Finance Banks different from Commercial Banks?
Small Finance Banks perform various tasks like commercial banks, such as lending, allowing deposits, and they even engage in non-risk-sharing financial activities like mutual funds and insurance. Yet, they are different from the other commercial banks. Some Basic differences are listed as follows:
Difference between Small Finance Banks and Commercial Banks
| Small Finance Banks | Commercial Banks |
| The main objective of Small Finance Banks is to promote and provide banking sectors for the underbanked and underprivileged sections of the society, like poor and working-class people, or small farmers and laborers. | Commercial Banks, on the other hand, provide banking services to all sections of society. |
| The Small Finance Banks are provisioned to extend 75% of its Adjusted Net Bank Credit to the priority sector. | Commercial Banks are expected to extend 40% of their Adjusted Net Bank Credit towards the priority sector. |
| These Banks are set on a small scale and cater to the needs of small sections of the society, by allowing a small amount of borrowings. | These Banks are instead, set on a large scale, and provide larger loan amounts to all sections of the society based on eligibility factors. |
| Small Finance Banks get the Differentiated Banks license by the Reserve Bank of India, which ensures that the Bank is set to serve a particular segment of the population. | Commercial Banks are granted the Universal Banks license by the Reserve Bank of India, which means all banking services are set under one roof to serve all sections of the society. |
| These Banks require a minimum capital of ₹ 100 Cr. | These Banks require a minimum capital of ₹ 500 Cr. |
| Examples of Small Finance Banks: Ujjivan Small Finance Bank, Jana Small Finance Bank, etc. | Examples of Commercial Bank: All Public and Private sector Banks, like SBI, PNB, Axis Bank, ICICI Bank, and HDFC Bank, etc. |
FAQs
✅Does Small Finance Bank provide credit and debit cards?
Small Finance Banks allow current and savings account facilities to their customers. Thus, they can issue debit cards. However, as per RBI’s directive, these banks are not allowed to issue credit cards.
✅Are Small Finance Banks approved by RBI?
All Small Finance Banks in India, are approved by the Reserve Bank of India under the Banking regulations Act of 1949. These Banks are accustomed to following the rules and patterns set by the RBI, similar to all other banks.
✅Is it safe to open an FD in a Small Finance Bank?
Unlike commercial banks, small finance banks also provide fixed deposits. Also, since these banks are newly established, they usually offer higher interest rates on FD than other commercial banks in order to attract more customers. Also, these FDs are equally safe and sound.
✅Can I take a loan from a Small Finance Bank?
Small Finance Banks do offer loans like commercial Banks, such as personal loans, housing loans, consumer loans, and auto loans.
- 2020-11-27 : ESAF Bank opens 500th branch in Ahmadabad
ESAF Bank opens 500th branch in Ahmadabad. The bank is aiming to offers equal opportunity for the whole society through universal access. It offers retail loans like home, personal, car, two-wheeler and gold loans along with mudra and business loan. - 2020-11-17 : Equitas Small Finance Bank launched a special women savings account
ESFB announced the launch of a women Eva savings account paying 7% interest. In every aspect, such as fitness, wealth and stability, Eva aims to address the well-being of Indian women. It also provides free health checks and unrestricted tele-consultation with women physicians, gynaecologists and mental health professionals. It also provides female clients with PF waiver and reduced gold loan rates, along with 25-50% discounts on lockers. - 2020-11-10 : Ujjivan Small Finance Bank reported a marginal rise in Q2 net profit
Ujjivan Small Finance Bank posted a marginal rise in net profit at Rs 96 crore for September. Total income during July-September 2020-21 increased to Rs 818.01 crore on the back of retail loans like home, personal, gold, two-wheeler and car loan along with business and mudra loans. Further, The bank opened 5.1 lakh deposit accounts between April and September while retail deposits have now grown to 49% of total deposits as against 42% a year back. Deposits which includes fixed and recurring deposits stood at Rs 10,743 crore. - 2020-10-28 : Customer spending getting back to pre-COVID levels for AU Small Finance Bank
AU Small Finance Bank reported an increase of 23% in per day debit card spends. Overall, point-of-sale and e-commerce transactions witnessed a surge of 16% since the launch of the festive offers. The festive offer of the AU Small Finance Bank includes credit offerings such as 100% waiver on valuation charges for gold loan and attractive interest rates on car and home loans. - 2020-10-23 : Jana Small Finance Bank plans 600 branches by March next year
Jana Small Finance Bank will convert its asset centres into bank branches to have over 600 branches. The Small Finance Bank serves underbanked customers through various products, including zero balance savings accounts, fixed deposits with attractive interest rates, collateral-free loans and affordable home loan schemes.
