The Reserve Bank of India (RBI) has decided to allow Small Finance Banks (SFBs) to raise pre-approved credit lines through the Unified Payments Interface (UPI).This aims to enhance financial inclusion and expand formal credit, especially for ‘new to credit’ customers.Note: In September 2023, the scope of UPI was expanded to allow pre-approved credit lines to be linked through UPI and used as a funding account by scheduled commercial banks.This, however, does not include payments banks, small finance banks (SFBs) and regional rural banks.
Small Finance Banks
- SFBs are specialised financial institutions regulated by the RBI under the Banking Regulation Act, 1949.
- It was announced in the Union Budget 2014-15 to increase credit supply by using high technology and low-cost operations.
- It was set up based on the recommendations of the Nachiket Mor Committee.
- Registration: SFBs are registered as a public limited company under the Companies Act, 2013.
- Objective: Its primary objective is to promote financial inclusion among the disadvantaged and unserved sections of the society.
- It caters to the needs of small business units, small and marginal farmers, micro and small industries and other unorganized sector entities.
- Mandate of SFBs: They must allocate 75% of their Adjusted Net Bank Credit (ANBC) to priority sectors including agriculture, MSMEs and weaker sections.
- At least 25% of SFB branches should be located in unbanked rural areas to improve rural banking access. • Capital requirement: A minimum capital of Rs 200 crore is required to set up an SFB bank.