InvestorQ : Can a small finance bank transform into a full-fledged bank?
Shreya Mashelkar made post

Can a small finance bank transform into a full-fledged bank?

Answer
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Nitin Shah answered.
1 year ago


A small finance bank is a differentiated or niche bank that provides banking services to a particular section or demographic of the society.

According to the Reserve Bank of India, the objectives of a small finance bank are to further financial inclusion by providing savings vehicle as well as credit supply to small business units; small and marginal farmers; micro and small industries; and other unorganised sector entities, through high technology-low cost operations.

The RBI has very stringent requirements for small finance banks, such as:

- Every small finance bank must have the words -- small finance bank -- in its name.

- Small finance banks cannot set up subsidiaries to undertake non-banking financial service activities.

- 75% of a small finance bank’s Adjusted Net Bank Credit (ANBC) should be advanced to the priority sector as categorized by RBI.

- A small finance bank’s maximum loan size to a single person cannot exceed 10% of its total capital funds

- A small finance bank’s maximum loan size cannot exceed 15% in the case of a group.

- At least 50% of a small finance bank’s loans should constitute loans and advances of up to 25 lakh.

Small finance banks offer facilities similar to regular commercial banks, but the RBI does allow small finance banks to convert to full-fledged banks if they meet the necessary criteria.