Top Small Finance Banks in India: Everything You Need to Know

Small Finance Banks or SFB Banks are changing the way banking works in India, especially for people who don’t have easy access to financial services. These banks focus on providing banking and loan services to small businesses, farmers, and low-income households. The Reserve Bank of India (RBI) introduced them in 2015 to improve financial inclusion across the country.

The Rise of Small Finance Banks

The RBI started SFB Banks to tackle financial exclusion, ensuring that more people, especially in rural and semi-urban areas, could access banking services. In 2015, the RBI gave licenses to 10 institutions, and later, two more were approved, making a total of 12 SFBs in India. Many of these banks evolved from Non-Banking Financial Companies (NBFCs), Microfinance Institutions (MFIs), and Local Area Banks.

Who Do They Serve?

SFBs are designed to help small businesses, farmers, and low-income individuals who struggle to get financial support from traditional banks. They offer a range of services like savings accounts, fixed deposits, loans, and insurance to cater to their needs.

One of their key mandates is to prioritize lending to critical sectors. As per RBI guidelines:

• At least 75% of their Adjusted Net Bank Credit (ANBC) must go to priority sectors like agriculture, small businesses, and affordable housing.
• At least 50% of their total loans must be ₹25 lakh or less to ensure small borrowers can access funds easily.

What are the Key Features and RBI Rules for SFBs?

The RBI has set some important rules to ensure these banks stay focused on their mission and operate effectively:

• Capital Requirement: SFBs must have at least ₹200 crore in paid-up capital.
• Promoter’s Contribution: Promoters must hold at least 40% of the paid-up capital for the first five years.
• Foreign Investment: Foreign Direct Investment (FDI) in SFBs follows private bank rules, with a cap of 74%.
• Branch Expansion: To improve banking access in remote areas, at least 25% of an SFB’s branches must be in rural regions that don’t have banks.
• Loan Focus: Half of their total loans should be ₹25 lakh or less, ensuring they serve small borrowers.
• Stock Market Listing: Once an SFB’s net worth crosses ₹500 crore, it must list on the stock market within three years.
• Transition to Universal Bank: If an SFB performs well for five years, it can apply to the RBI to become a full-fledged universal bank.

Leading Small Finance Banks in India

Several SFBs are making a big impact across the country. Here are some key players:

• AU Small Finance Bank: Started as an NBFC in 1996, it became an SFB in 2017.
• Equitas Small Finance Bank: Established in 2007, it transitioned into an SFB in 2016.
• Ujjivan Small Finance Bank: Originally a microfinance institution, it became an SFB in 2017.
• Northeast Small Finance Bank: Launched in 2017, it started operations in 2018.
• Unity Small Finance Bank: Formed in 2021 to take over the troubled Punjab and Maharashtra Co-operative Bank.

Other well-known SFBs include ESAF, Fincare, and Utkarsh, all of which play a crucial role in expanding financial services to millions across India.

Challenges and What’s Next!

Small Finance Banks (SFBs) have done well, but they also face challenges. The list of small finance banks needs to stay profitable while serving low-income customers, managing risks in their operations, and following strict regulations. Their innovative approach and strong focus on financial inclusion put them on a path for future growth.

With competition increasing and customer expectations rising, the list of small finance banks must adopt advanced technologies like digital banking to enhance their services. Its ability to expand and bring banking to more unserved people will determine its impact on India’s financial system.

FAQs on Small Finance Banks in India

Do Small Finance Banks offer insurance services?

Yes, some Small Finance Banks in India provide insurance services. They offer deposit insurance through the DICGC, which protects up to ₹5 lakh per account. They also partner with other companies to offer life, health, and general insurance goods.

Do Small Finance Banks offer services in rural and semi-urban areas?

Yes, Small Finance Banks (SFBs) serve rural and semi-urban areas in India by providing important banking services to help include more people in the financial system. Regulated by the Reserve Bank of India (RBI), they focus on underserved and unbanked people.