Small Finance Bank Vs Commercial Bank

Recently launched, Small Finance Bank's category is absolutely different from that of commercial bank. Small Finance Bank is called Differentiated Bank whose concept first came in the year 2007. After working on this concept, RBI granted in-principle approvals to 10 for Small Finance Bank (SFB) in September 2015. The main idea behind introduction of such banks by RBI is to target a specific market and customise these banks' operations on the basis of this target market's preferences.

Small Finance Bank offers limited range of products and services to their customers with an objective to provide financial inclusion to untapped and unserved sections of Indian population. Commercial Banks are already well established banks with their branch network across India.

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Small Finance Bank

1. Small finance banks were recommended by the NachiketMor Committee on Financial Inclusion
2. Area of operations will be smaller
3. Can's extend large loans
4. 50% loans to Micro, Small and Medium Enterprises (MSME) Sector
5. For Initial 3 years, 25% branches must be in rural areas to tap those areas
6. Not allowed to set up a subsidiary to offer non banking financial services to the customers
7. Target customers are MSME, Small Farmers, Small Businessman, Unorganized Workers, etc.
8. Cooperative bank can't apply for license of small banks
9. Small finance banks are governed by the provisions of Reserve Bank of India act 1934, Banking Regulation act 1949 and other relevant statutes

Commercial Bank

1. Commercial Bank has no restrictions on providing any kind of products, functions and services to the customers
2. Commercial banks in India can extend lending services such as home loans, personal loans, etc. without any restriction
3. No cap on accepting deposits from its customers
4. Can issue Debit as well as Credit Cards
5. Commercial banks are allowed to invest the money they collect in form of deposits in open market
6. Commercial banks can provide foreign exchange services however different banks charges are different for these services

Small Finance Bank Vs Commercial Bank

Find below major differences between Small Finance Bank and Commercial Bank

Basis of Difference	Small Finance Bank	Commercial Bank
Who can promote	Individuals/ professional having 10 years experience in finance, NBFCs, microfinance companies, local area banks, etc.	As per guidelines issued by RBI
Promoter's Share	40% in starting Then can be gradually brought down to 26% in 12 years	As per guidelines issued by RBI
Capital Required	Minimum Paid Up capital should be 100 Crores	Commercial banks have enormous amounts of capital.
Regulatory Requirements	Meet CRR and SLR set by the RBI	Meet CRR and SLR set by the RBI
Customer Reach	Customers are reached through its branches	Customers are reached through its branches
Demand Deposit	Can accept demand deposit like savings deposit without any fixed limit	Can accept deposit without any fixed limit
Time Deposit	Can accept Time Deposit such as Fixed Deposit and Recurring Deposit	Can accept Time Deposit such as Fixed Deposit and Recurring Deposit
Loan	Can offer loan. Must extend 75% loans to priority sectors	Can offer loan to its customers
Remittance Services	Can provide Remittance Services	Can provide Remittance Services
Online Banking Solutions	Can offer online banking services	Can offer online banking services
Revenue	Earns revenue through leding services	Earns revenue through leding services, transaction charges, etc.
Debit Card	Can issue Debit Card and ATM Card	Can issue Debit Card and ATM Card
Credit Card	Can issue credit cards	Can issue Credit Card
Target Customers	MSME, Small Farmers, Small Businessman, Unorganized Workers, etc.	Not restricted to any region
Forex Services		Can provide foreign exchange services, however, different banks charges are different for these services
Adoption of Technology	Should be fully technology driven right from the beginning	Gradually implementing latest technology like online transactions, mobile banking, etc.
Branches	For Initial 3 years, 25% branches must be in rural areas to tap those areas	Can open branches anywhere in India
Third Party Products	Can sell third party products like mutual funds, indurance, pension products, etc.	Can sell third party products like mutual funds, indurance, pension products, etc.

Interested to know Small Finance Bank Vs Commercial Bank

Launch of More New Types of Differentiated Banks

The Reserve Bank of India has already issued licenses to 2 types of differentiated banks namely Payments Bank and Small Finance Banks. Now RBI is exploring the possibilities of licensing other types of differentiated banks as well like Custodian Banks and bank concentrating on Whole Sale and Long-Term financing.

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