MICROCAPITAL BRIEF: Reserve Bank of India (RBI) Enables “Small Finance Banks” in Effort to Promote Financial Inclusion

The Reserve Bank of India (RBI), the country’s central banking authority, recently issued guidelines for the licensing of “small finance banks,” which are intended to provide credit and savings services to small businesses, small-scale farmers and other entities in the “unorganized sector.”

These Banks must have minimum paid-up equity capital of INR 1 billion (USD 15.8 million), 40 percent of which must come from the organization’s promoter during the first five years of operation. The promoter may be a nonbank financial company, microfinance institution, local area bank or resident individual with a minimum of 10 years experience in the financial sector. There is no geographical restriction regarding where these banks may operate within the country.

By Ananya Tiwari, Research Associate

About Reserve Bank of India (RBI)

Reserve Bank of India (RBI) is India’s central banking authority. Established in 1935, RBI undertakes consolidated supervision of the financial sector comprising commercial banks, financial institutions and non-banking finance companies (NFBCs). The current focus of RBI is to supervise financial institutions, consolidate accounting standards, resolve legal issues in cases of banking fraud, monitor non-performing assets and supervise the rating model for the banking sector. In 1979, the National Bank for Agriculture and Rural Development (NABARD) was formed at the behest of RBI to provide regulatory oversight to regional rural banks (RRBs) and to promote the development of agricultural lenders: tasks that had been the responsibility of RBI. While non-banking financial companies such as for-profit microfinance institutions operate under RBI regulations, the responsibility for inspecting agricultural lenders, RRBs, state cooperative banks, district central cooperative banks and state cooperative agricultural and rural development banks was transferred to NABARD. RBI maintains these responsibilities for for-profit MFIs. Although RBI was originally the parent organization of NABARD and until October 2010 held a 72.5-percent stake in the outfit, RBI owns a 0.5-percent stake in NABARD as of March 31, 2013. RBI reported total reserves of USD 263 billion as of February 14, 2014.

Sources and Additional Resources

[1] RBI Press Release, http://rbi.org.in/scripts/BS_PressReleaseDisplay.aspx?prid=32614

MicroCapital, August 20, 2014, Reserve Bank of India (RBI) to Encourage Banks to Deploy Rural Automatic Teller Machines (ATMs), Use Unclaimed Funds for Financial Education, https://www.microcapital.org/microcapital-brief-reserve-bank-of-india-rbi-to-encourage-banks-to-deploy-rural-automatic-teller-machines-atms-use-unclaimed-funds-for-financial-education/

MicroCapital, July 7, 2014, Reserve Bank of India (RBI) Allows Non-banking Finance Companies (NBFCs) to Work as Agents for Banks, https://www.microcapital.org/microcapital-brief-reserve-bank-of-india-rbi-allows-non-banking-finance-companies-nbfcs-to-work-as-agents-for-banks/

MicroCapital, July 2, 2014, Reserve Bank of India Simplifies “Know Your Customer” Requirement for Establishing Bank Accounts, https://www.microcapital.org/microcapital-brief-reserve-bank-of-india-simplifies-know-your-customer-requirement-for-establishing-bank-accounts/

MicroCapital, May 27, 2014, Reserve Bank of India (RBI) Gives 2-Year Extension to Share, Asmitha, Spandana Sphoorty to Meet Capital Requirements, https://www.microcapital.org/microcapital-brief-reserve-bank-of-india-rbi-gives-2-year-extension-to-share-asmitha-spandana-sphoorty-to-meet-capital-requirements/

MicroCapital Universe Profile: Reserve Bank of India (RBI), https://www.microcapital.org/microfinanceuniverse/tiki-index.php?page=Reserve+Bank+of+India+%28RBI%29

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