RBI rejects request from Small Finance Banks to remove ‘Small Finance’ Tag from their Names
The Reserve Bank of India (RBI) has declined the request made by small finance banks (SFBs) to remove the “small finance” tag from their names. The RBI stated that SFBs are differentiated banks with specific objectives, such as promoting financial inclusion. M. Rajeshwar Rao, deputy governor of RBI, explained during a post-monetary policy media interaction that the “Small Finance Bank” tag is a crucial part of their differentiation and there is currently no need to modify it.
Objectives of SFBs
Small finance banks (SFB) are a type of niche banks in India. Banks with a SFB license can provide basic banking service of acceptance of deposits and lending. The aim behind these is to provide financial inclusion to sections of the economy not being served by other banks, such as small business units, small and marginal farmers, micro and small industries and unorganised sector entities.
Challenges with the “Small” Name
Small Finance Banks (SFBs) have expressed concerns about being associated with the term “small” in their banking operations. While they are comfortable with providing loans, they have noticed that some depositors may feel uncertain about engaging with banks that carry this label. During discussions with the regulator, SFB officials argued that they can still serve small customers effectively without being labeled as “small” banks. This would help eliminate any confusion or doubts in the minds of depositors.
Differentiation and Requirements for SFBs
Small Finance Banks (SFBs) are specialized banks that have a minimum net worth requirement of Rs 200 crore, which is lower compared to other regular banks. These banks have a strong emphasis on promoting financial inclusion. As part of their commitment to this goal, SFBs are required to lend at least 75 percent of their adjusted net bank credit (ANBC) to priority sectors. This is much higher compared to the 40 percent requirement for other regular banks.
