Goseeko blog

What is small finance Bank?

by Team Goseeko

Small finance bank is a niche banking system. Initially, in 2015 RBI provide approval for implementation of this bank. Accordingly, it helps to fulfill the objectives of financial inclusion of economically weak section of the society. This section are micro and small business enterprises, local artisans, uncontrolled manufacturing sector, small and marginal farmers, daily wage earners, seasonal labors etc. Above all, with this objective small finance provides basic banking services to those people who unable to access the formal banking system. Thus, it provide services like acceptance of deposit, lending of money, insurance, pension etc. to economically vulnerable section of the society. Further, it is registered as public company under the Companies Act. 1956.

Section 22 of the Banking regulation Act, 1949 provide license for establishment of this bank. The minimum paid-up equity capital for small finance banks shall be 200 crore. Moreover, it shall be required to maintain a minimum capital adequacy ratio of 15 per cent of its risk weighted assets (RWA) on a continuous basis. Existing non-banking financial companies (NBFC), microfinance institutions (MFI) and local area banks (LAB) can apply to become small finance banks.

Objectives of small finance bank

The objectives of setting up of small finance banks will be for furthering financial inclusion by

(i) Savings:

Initially, provision of savings vehicles for financial backward sections of the population,

(ii) Credit:

Secondly, supply of credit to small business units; small and marginal farmers; micro and small industries; and other uncontrolled sector entities, through high technology-low cost operations

Moreover, the regulatory provisions are under

  1. The RBI Act 1934,
  2. Foreign Exchange Management Act, 1999,
  3. Payment and Settlement Systems Act, 2007,
  4. Deposit Insurance and Credit Guarantee Corporation Act, 1961 etc.


However, the characteristics of financial services are

  1. Firstly, it is intangible in nature.
  2. Secondly, it involves direct sale.
  3. Thirdly, it is Heterogeneous in nature.
  4. Additionally, there is huge fluctuation in demand .
  5. Furthermore, it is Geographically scattered
  6. Finally, it Protects consumer’s interest.

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