- Recently microlenders, Suryoday and Utkarsh, have started the small finance banks (SFBs).
- They are offering interest rates of more than 6% in order to compete with commercial lenders for savings bank deposits. Most of the commercial banks offer 4% on savings accounts.
- Small finance banks were key recommendations of the committee on financial inclusion chaired by Nachiket Mor.
- Small finance banks are niche banks (banks that focuses and serves the needs of a certain demographic segment of the population) with main function to perform lending activities among weaker section.
- The SGBs perform both deposit-taking and loan-making functions.
- The RBI estimates that close to 90 per cent of small businesses today have no links with formal financial institutions.
- Taking into account of the above it was concluded that small finance banks can play an important role in the supply of credit to micro and small enterprises, agriculture and banking services in unbanked and under-banked regions in the country.
Characteristics of SFBs:
- Resident individuals/professionals carrying 10 years of experience in banking and finance and companies and societies owned and controlled by residents will be eligible to set up small finance banks.
- SFBs have a minimum paid up capital of ₹.100 crore.
- SFBs are mainly for the growth of agriculture and Micro, Small and Medium industries.
- SFBs can sell forex, mutual funds, insurance, pensions and can also convert into a fullfledged bank.
For more information:- Current Affairs.