Small Finance Banks - an Overview

On September 16, 2015, Reserve Bank gave  in-principle approval to ten entities to set up small finance banks- eight out of these are micro-finance institutions (MFIs).  RBI felt that MFIs are suitable vehicles to accomplish the task of financial inclusion - a priority agenda of the central government. Bandhan Bank, which has now started its operations after getting universal banking licence, was also an MFI.

The main purpose to establish small finance banks is to expend  financial services in rural and semi-urban areas. These banks can carry out all functions  that a normal commercial bank can do, but at a much smaller scale. These will offer basic banking services, accept deposits and lend to un-served and under-served sections of society.

Reserve Bank has, in a very short span, given licenses to two universal banks, eleven payment banks and ten small finance banks. Universal Banks were already in existence, but  payment banks and small finance banks are new concepts in India. These banks may overlap each other in purpose and services - mostly in increasing access to banking facilities -still there are many key differences, which I would like to give here under for better understanding;

(The views expressed in the article are merely for academic purpose and are not subscribed by the organisation where the author is working)

Tilak Gulati is Assistant General Manager at UCO Bank. 
Author:  www.itstrgulati.blogspot.in

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