In the world of India’s small finance banks there is an impending launch of IPO of 5 of the banks that are Fincare Small Finance Bank ( ₹1,330 crore), Jana Small Finance Bank Ltd, formerly known as Janalakshmi Financial Services Ltd, ( ₹ 700 crore), Capital Small Finance Bank Ltd ( ₹1,000 crore) and ESAF Small Finance Bank ( ₹1,000 crore) and Utkarsh SFB ( ₹1,350 crore).
There are differences between what a Small Finance Banks is when compared to conventional banks. These SFBs do depend on their background as MFIs and build on top of that transforming themselves and moving to their “next level”. Yet there are differences between what is defined as a Small Bank and MFI.
Below is a summary of the differences between these institutions. Note that this is not the complete list neither is it absolute as the rules are based on the geography and time. These are the current regulations in the Indian subcontinent.
|Parameter of Comparison||Commercial Bank||Small Finance Bank||Microfinance Institution|
|Capital limit||No limit for the capital that can be incurred by a commercial bank||Minimum capital paid up should be a hundred thousand dollars||Capital adequacy ratio of Tier I and Tier II Capital which shall not be less than 15 per cent of its aggregate risk weighted assets|
|Loan services||Can offers loans to all customers of the Bank||It can offer loans to customers. But should extend 75% of loans to the priority sectors.||Not have more than 10% of its total assets as loans, non-collateral and high risk loans|
|Revenue earning||An earn revenue employing lending services and transaction charges.||Can earn revenue utilizing lending services to the target customers.||Interest on loans and charges on the deposit and any other such provided services|
|Target customers||No restriction to any region.||Target customers are small farmers, small businesses, unorganized workers as well as MSME.||Underserved and poorest customers, not suitable to mainstream institutions|
|Branches||Can open branches anywhere within the country||For the first 3 years, 25% of branches should be in rural areas.||Generally localized in the location of their target customer presence|