RBI says small finance banks will not have restriction in area of operations

These banks shall undertake basic banking activities of acceptance of deposits and lending to underserved sections

The Reserve Bank of India (RBI) has released the final guidelines on small finance bank according to which these banks shall not have any restriction in the area of operations. These banks shall primarily undertake basic banking activities of acceptance of deposits and lending to underserved sections.

According to the banking regulator if the small finance bank aspires to transit into a universal bank, such transition would be subject to fulfilling minimum paid-up capital / net worth requirement as applicable to universal banks. Besides that satisfactory track record of performance as a small finance bank shall also be an important aspect.

The minimum paid-up equity capital for small finance banks shall be Rs 100 crore. The promoter's minimum initial contribution to the paid-up equity capital of such small finance bank shall at least be 40 per cent and gradually brought down to 26 per cent within 12 years from the date of commencement of business of the bank.

The small finance bank will be subject to all prudential norms and regulations of RBI as applicable to existing banks including requirement of maintenance of Cash Reserve Ratio (CRR) and Statutory Liquidity Ratio (SLR). These banks will be required to extend 75 per cent of its Adjusted Net Bank Credit (ANBC) to the sectors eligible for classification as priority sector lending (PSL) by the central bank.