SMALL FINANCE BANKS AND PAYMENT BANKS
Small Finance Banks and Payment Banks are two distinct categories of banks introduced by the Reserve Bank of India (RBI) to expand financial inclusion and cater to specific segments of the population.
What are Small Finance Banks in India?
Small Finance Banks (SFBs) in India are financial institutions that primarily focus on providing banking services to unserved and underserved sections of the population, including small businesses, micro and small industries, farmers, and the unorganized sector. These banks are licensed under the RBI and operate similarly to traditional banks, offering a range of services such as accepting deposits and providing loans. However, they have certain restrictions and obligations, including the priority of lending to specific sectors and a focus on financial inclusion
List of Small Finance Banks:
In 2023, India is home to a dozen small finance banks, which include entities such as
- Au Small Finance Bank Ltd.
- Capital Small Finance Bank Ltd
- Disha Microfin Pvt Ltd
- Equitas Small Finance Bank Ltd
- ESAF Small Finance Bank Ltd.
- Fincare Small Finance Bank Ltd.
- Jana Small Finance Bank Ltd
- North East Small Finance Bank Ltd
- Shivalik Small Finance Bank Ltd
- Suryoday Small Finance Bank Ltd.
- Ujjivan Small Finance Bank Ltd.
- Utkarsh Small Finance Bank Ltd.
What is a Payment Bank?
A Payment Bank is a type of differentiated bank introduced by the Reserve Bank of India (RBI) to offer banking services focused on payments, remittance services, and small savings accounts. These banks are designed to provide financial inclusion by targeting low-income households, migrant workers, small businesses, and others who might not have access to traditional banking services
The payment banks can accept only demand deposits and hold up to Rs 1 lakh per individual.
Differences between Payment bank and Small Finance bank
| Feature | Payment Bank | Small Finance Bank |
|---|---|---|
| Objective | Provide basic banking services to underserved and unbanked populations | Provide financial services to underserved and unbanked populations, with a focus on lending |
| Types of deposits | Can accept demand deposits only, with a maximum balance of ₹2 lakh per account | Can accept all types of deposits, including demand deposits, savings deposits, fixed deposits, and recurring deposits |
| Lending activities | Cannot issue loans or credit cards | Can issue loans and credit cards, but at least 50% of their loan portfolio must be to individuals and small businesses |
| Branch network | Can operate through brick-and-mortar branches, mobile banking, and business correspondents | Can operate through brick-and-mortar branches, mobile banking, and business correspondents |
| Technology | Can leverage technology to provide innovative banking services | Can leverage technology to provide innovative banking services |
| Regulatory framework | Regulated by the Reserve Bank of India (RBI) | Regulated by the RBI |
| MCQs On Small Finance Banks and Payment Banks Question: Small Finance Banks are mandated to provide: A) Wholesale banking services. B) Banking services to large industries. C) Credit and deposit facilities to small businesses and unbanked sections. D) International banking facilities. Answer: C) Credit and deposit facilities to small businesses and unbanked sections. Question: Payment Banks are not permitted to: A) Offer current and savings accounts. B) Issue debit cards. C) Provide remittance services. D) Facilitate fund transfers. Answer: A) Offer current and savings accounts. Question: What is the maximum balance limit for Payment Banks? A) Rs. 1 lakh B) Rs. 2 lakhs C) Rs. 5 lakhs D) Rs. 10 lakhs Answer: A) Rs. 1 lakh Question: Small Finance Banks are required to extend ___% of their loans to priority sectors. A) 20% B) 30% C) 40% D) 50% Answer: D) 50% Question: The initial paid-up capital requirement for Small Finance Banks is: A) Rs. 50 crore B) Rs. 75 crore C) Rs. 100 crore D) Rs. 200 crore Answer: C) Rs. 100 crore |
| Previous Year Questions 1.The establishment of \'Payment Banks\' is being allowed in India to promote financial inclusion. Which of the following statements is/are correct in this context? (UPSC CSE 2016) 1. Mobile telephone companies and supermarket chains that are owned and controlled by residents are eligible to be promoters of Payment Banks. 2. Payment Banks can issue both credit cards and debit cards. 3. Payment Banks cannot undertake lending activities. Select the correct answer using the code given below. A.1 and 2 only B.1 and 3 only C.2 only D.1, 2 and 3 Answer (B) |