A Small Finance Bank (SFB) is a type of financial institution in India that operates as a niche bank, focusing on providing basic banking and financial services to small businesses, micro and small industries, farmers, low-income households, and other underserved sections of the population. Small Finance Banks were introduced by the Reserve Bank of India (RBI) to promote financial inclusion and cater to the unbanked and underbanked segments of society.
Here are some key features of Small Finance Banks:
- Financial Inclusion: Small Finance Banks are specifically designed to bring banking services to the unbanked and underprivileged sections of the population, including small and marginal farmers, micro and small industries, and entities in the unorganized sector.
- Basic Banking Services: Small Finance Banks offer a range of basic banking services, including savings and current accounts, fixed deposits, recurring deposits, and remittance services. They also provide small-ticket loans and microloans to individuals and businesses.
- Priority Sector Lending: Small Finance Banks are mandated to allocate at least 75% of their total adjusted net bank credit to sectors categorized as priority sectors by the RBI. These sectors include agriculture, micro, and small enterprises, education, housing, and other specified activities that promote financial inclusion.
- Microfinance: Small Finance Banks often have a focus on microfinance activities, providing small loans to individuals and groups in rural and semi-urban areas. Microfinance plays a significant role in their lending portfolio.
- Technology Adoption: Small Finance Banks leverage technology and digital banking solutions to reach remote areas and provide convenient banking services. Mobile banking, online banking, and digital payment services are commonly offered to enhance customer accessibility.
- Regulation: Small Finance Banks are regulated by the Reserve Bank of India and are subject to the same regulatory framework as other commercial banks in the country. They need to comply with regulatory guidelines related to capital adequacy, governance, and risk management.
- Promoters: Small Finance Banks can be promoted by a variety of entities, including microfinance institutions, non-banking finance companies (NBFCs), cooperative banks, and individual entrepreneurs. However, they must meet the eligibility criteria set by the RBI.
The introduction of Small Finance Banks has played a significant role in expanding financial services to the marginalized and underserved population in India. By focusing on financial inclusion and providing basic banking services, these banks contribute to economic development and poverty alleviation in the country.