Small Finance Banks

Small Finance Banks are the financial institutions which provide financial services to the unserved and unbanked region of the country and are registered as a public limited company under the Companies Act, 2013.

These include small business units set in rural areas, small and marginalized farmers, unorganized entities, and micro and small industries.


The various features of SFB’s are listed below-

  • 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 Rs 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.
  • They cannot be a Business Correspondent (BC) for another bank. However, they can have their own BC network.


  1. The main purpose behind having small finance banks is to expand access to financial services in rural and semi-urban areas.
  2. It helps in the supply of credit to small business units; small & marginal farmers; micro & small industries and other unorganized sectors.
  3. To contribute to the development of the weaker sections as they provide the much needed financial help to them.


  • The minimum net worth of such small finance banks shall be Rs. 100 crore from the date of commencement of business.
  • At least 50% of its loan portfolio should constitute of loan and advances up to 25 lakhs.
  • Existing non-banking financial companies (NBFC), microfinance institutions (MFI) and local area banks (LAB) can apply to become small finance banks.


The small finance banks can deal with the following products:-

  • Basic banking such as, acceptance of deposits and lending to underserved sections of the society;
  • 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.
  • Financial services such as distribution of mutual funds and insurance products with prior approval from the RBI and other sectoral regulators;
  • The small finance bank can also become an Authorised Dealer in foreign exchange business for its clients’ requirements.

Thus, in simple words Small finance banks are those banks  which provide basic banking facilities to the economical sections which are not supported by the other banks & are  licensed under section 22 of the Banking Regulation Act, 1949. 

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