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Small Banks in India | SBI PO Prelims & Mains Preparation - Bank Exams PDF Download

Definition and Objective

Banks with a small finance bank license can provide basic banking services of acceptance of deposits and lending. The objective behind setting up small banks in India is to serve the sections of the society which are underserved or un-served and provide credit to small business units, small and marginal farmers, and other unorganized sectors.

Small Banks in India | SBI PO Prelims & Mains Preparation - Bank Exams

Registration, Regulation & Equity Capital

  • The small finance bank shall be registered under the Companies Act, 2013. It is licensed under section 22 of the Banking Regulation Act, 1949. The minimum paid-up capital required to set up a small finance bank is Rs.200 crore and it will be required to maintain a capital adequacy ratio of 15 percent of its risk-weighted assets.
  • The promoters have to contribute an initial 40 percent of paid-up equity capital.  According to FDI policy foreign investors can invest in small finance banks up to 74 percent of equity capital (49 percent from direct route and other from approval route).

Some operating small finance banks in India:

Small Banks in India | SBI PO Prelims & Mains Preparation - Bank Exams

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FAQs on Small Banks in India - SBI PO Prelims & Mains Preparation - Bank Exams

1. What are small banks in India?
Ans. Small banks in India are financial institutions that operate at a local or regional level and provide banking services to individuals and small businesses. These banks are licensed by the Reserve Bank of India (RBI) and are subject to the same regulations as larger banks. Small banks have a limited branch network and offer basic banking services such as deposits, loans, and savings accounts.
2. What is the objective of small banks in India?
Ans. The objective of small banks in India is to promote financial inclusion and provide banking services to underserved and unserved areas of the country. Small banks aim to cater to the needs of the local community by providing easy access to banking services, especially in rural and semi-urban areas. These banks also help in promoting entrepreneurship and micro, small, and medium enterprises (MSMEs) by providing them with credit and other financial services.
3. What are the benefits of banking with small banks in India?
Ans. Banking with small banks in India has several benefits. These banks offer personalized services and have a better understanding of the local market and customer needs. Small banks also offer competitive interest rates on deposits and loans, which can be beneficial for customers. Additionally, small banks have a faster turnaround time for loan approvals and disbursements, which can be helpful for MSMEs and individuals who need quick access to credit.
4. How are small banks regulated in India?
Ans. Small banks in India are regulated by the Reserve Bank of India (RBI) and are subject to the same regulations as larger banks. The RBI sets guidelines and regulations for small banks related to capital adequacy, risk management, asset quality, and liquidity management. Small banks are also required to comply with the Know Your Customer (KYC) norms and Anti-Money Laundering (AML) regulations to prevent fraud and financial crimes.
5. What is the difference between small banks and payment banks in India?
Ans. Small banks and payment banks are two different types of banks in India. Small banks offer a wider range of banking services, including deposits, loans, and savings accounts, and operate at a local or regional level. Payment banks, on the other hand, provide only basic banking services such as deposits and remittances, and are not allowed to provide loans or issue credit cards. Payment banks also cannot accept deposits over Rs. 1 lakh per customer.
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