Why in News?

  •  Data from the Reserve Bank of India (RBI) show that the small finance banks, in total, saw their deposits grow 31.6% in the third quarter (ended December) of this financial year, compared with the second quarter.

Small Finance Banks(SFBs):

  •  The small finance bank will primarily undertake basic banking activities of acceptance of deposits and lending to unserved and undeserved sections including small business units, small and marginal farmers, micro and small industries and unorganised sector entities.

Functions of SFBs:

  •  Accept small deposits and disburse loans.
  •  Distribute mutual funds, insurance products and other simple third-party financial products.
  •  Lend 75% of their total adjusted net bank credit to priority sector.
  •  Maximum loan size would be 10% of capital funds to single borrower, 15% to a group.
  •  Minimum 50% of loans should be up to 25 lakhs.
  • How are they different from other commercial banks?
  •  They Cannot open branches with prior RBI approval for first five years.
  •  Cannot lend to big corporates and groups.
  •  Other financial activities of the promoter must not mingle with the bank.
  •  They cannot set up subsidiaries to undertake non-banking financial services activities.
  •  Cannot be a business correspondent of any bank.
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