Banking in India Part 4

Banking in India Part 1

Banking in India

Part 4

Types of Banks

Small Finance Banks (SFB)

  • Small Finance Bank (SFB) is a private financial institution that conducts basic banking activities such as deposit acceptance and lending to underserved segments of the society.
  • However, unlike Regional Rural Banks or Local Area Banks they can operate without any geographical restrictions.
  • Unlike payments banks, small finance banks are permitted to lend money to individuals.
  • The idea behind the creation of SFBs originated in the 2014-2015 Union Budget.
  • RBI issued guidelines for the licencing and regulation of SFBs on November 27, 2014.
  • Ten applicants were given “in-principle” approval to establish small finance banks by RBI on September 16, 2015.

These were

  • AU Financiers (Jaipur),
  • Capital Local Area Bank (Jalandhar),
  • Disha Microfin (Ahmedabad),
  • Equitas Holdings (Chennai),
  • ESAF Microfinance and Investments (Chennai),
  • Janalakshmi Financial Services (Bengaluru),
  • RGVN (Northeast) Microfinance (Guwahati),
  • Suryoday Micro Finance (Navi Mumbai),
  • Ujjivan Financial Services (Bengaluru), and
  • Utkarsh Micro Finance (Varanasi)

Payments Banks

  • They are licensed by the Reserve Bank of India under the Banking Regulation Act of 1949 to improve financial inclusion.
  • They will also help in promoting the Migrant labour Workforce, remittance services, several payments to low-income households, small businesses, etc.
  • They are allowed to conduct money transfers as well as sell insurance and mutual funds, however, they can only issue ATM/debit cards, not credit cards.
  • They are prohibited from establish subsidiaries to provide non-banking financial services and from engaging in any lending activities.
  • Payments banks can increase the amount of money that enters the banking system thereby reducing black money.
  • An External Advisory Committee (EAC) led by Nachiket Mor was formed to evaluate the licence applications for Payment Banks.
  • The Payments Bank will be registered as a public limited company under the Companies Act of 2013.
  • They are governed under the provisions of the Reserve Bank of India Act of 1934, Banking Regulation Act of 1949, the Foreign Exchange Management Act of 1999, the Payment and Settlement Systems Act of 2007.

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