Are you ready for Variety of choices in financial Inclusion?

First Payment bank and then Small finance banks are the big idea.

The RBI's intention behind granting approvals to both of them is to create competition so that customers can get a variety of choices.

 Reserve Bank of India provide the opportunity for customers by shortlisted 10 micro lenders to set up small banks to advance loans primarily to the unbanked, small businesses and farmers, micro and small industries and unorganized sector entities which do not have access to finance from the larger banks.

Small finance banks are similar to regular commercial banks except that their scale of services will be much smaller.

These new type of banks should generate

• At least 75% of their business from the priority sector (largely agriculture)
• Mainly from areas where large banks are not present.
• 50% of their loans should be of ticket sizes under Rs 25 lakh 

With the goal to reach the rural customers who are deprived of the services provided by the larger banks. Micro banks provide them those services so that they are able to improve their livelihood and also assisting them to use govt. financial services, they are unaware off.   

Guidelines to be met by small finance banks:

• 75 percent of Adjusted Net Bank Credit to be extended to priority sector.
• 50 percent of loan portfolio to constitute loans & advances of upto Rs 25 lakh
• 25 branches must be in unbanked rural areas
• Maximum loan size & investment limit to single obligor and Group restricted to 10 percent of capital funds.
• Require minimum paid up equity capital of Rs 100 crore.
• Promoter stake must be at 40 percent in first 5 years
• Promoter stake to be brought down to 30 percent within 10 yrs, 26 percent in 12 years
• Listing mandatory within 3 years of reaching Rs. 500 crore net worth
• Maximum foreign shareholding of 74 percent allowed
• CRR, SLR requirement as applicable to existing commercial banks from Day 1

These banks thus will add a much-needed financial inclusion dimension to the banking system. Over the next decade or so their functioning has the potential to bring about another revolution in the banking sector.