Out of 72 submissions for the commencement of small finance banks, the Reserve Bank of India on Wednesday disclosed the list of 10 selected companies who have got the in-principle approval. It includes Au Financiers (Jaipur), Capital Local Area Bank (Jalandhar), Disha Microfin (Ahmedabad), Equitas Holdings (Chennai), ESAF Microfinance and Investments (Chennai), Janalakshmi Financial Services (Bengaluru), RGVN (Northeast) Microfinance (Guwahati), Suryoday Micro Finance (Navi Mumbai), Ujjivan Financial Services (Bengaluru) and Utkarsh Micro Finance (Varanasi).
The applicants were selected after a detailed study of the companies was conducted and opinion of three different committees was considered. The license of the selected applicants will be legitimate only for 18 months to comply with the conditions and guidelines instructed by the RBI. The rejected list included names of big companies like Dewan Housing, former Union Bank CMD Cherian Varghese, IIFL Holdings, Lulu Finance, SKS Microfinance and UAE Exchange. The small finance banks have been initiated to make the banking activities more competitive.
The basic purpose of small finance banks is to carry out banking activities like accepting deposits, providing loan to farmers and unserved and underserved sections, and lending money to small business units, and micro and small industries. They can now also avail insurance products and mutual funds from the small finance banks.
However, the small finance banks cannot lend the deposits to big corporate groups. The aggregate loan amount shouldn’t exceed more than 25 lakhs. In addition, none of the approved companies can open any branch without RBI’s permission for initial five years. It requires minimum paid-up equity capital of Rs 100 crore. Any foreign shareholding in the small finance banks will be as per the directives mentioned in the foreign direct investment policy for the private sector banks. Without any geographical boundaries to set up small finance banks, the rural people can easily access banking facilities.