"Reserve Bank of India (RBI) for the development of economic activities in the local areas grants license to Small Finance Banks and Payment Banks". State the purpose and the need being foreseen by RBI to have small fina

The Reserve Bank of India with the aim of strengthening financial inclusion by covering the section of the economy comprising of small business units, small and marginal farmers and unorganized sector entities not being served by other banks for promoting rural and semi urban savings and extending credit for viable economic activities in the local areas decided to establish Small Finance Banks and called for applications. Small Finance Banks can be promoted by individuals, corporate houses, trusts or societies. However, joint ventures are not permitted. Existing Non-Banking Finance Companies (NBFCs), Micro Finance Institutions (MFI) and Local Area Banks (LAB) may convert themselves to become small finance banks by making application. In the light of the aforesaid fact applications were received from total 72 entities for Small Finance Bank, the Provisional license was granted to 10 entities with a direction to convert themselves in Small Finance Bank within one year. Salient regulatory requirements of the Small Finance Banks are as under:- Promoters should have experience of 10 years in banking and finance and have a capital stake of 40% of equity which must be brought down to 26% over a period of 12 years. Foreign shareholding will be allowed in these banks as per the Foreign Direct Investment rules in private banks in India. These Small Finance Banks need to be registered as Public Limited Companies under The Companies Act, 2013 and Reserve Bank of India Act, 1934, Banking Regulation Act, 1949 and other relevant statutes are applicable to them. The bank will not be restricted to any region. 75% of its Net Credit should be lent to Priority Sector and 50% of its loans should be in the range of up to ₹ 25 lakhs. At net worth of ₹ 500 crore, listing will be mandatory within three years. Those small finance banks having net worth of below ₹ 500 crore could also get their shares listed voluntarily.