First of all, it is quite necessary to understand that Small Finance Bank and Payments Bank category is absolutely different from that of commercial bank. Small Finance Bank and Payments Bank are called Differentiated Banks 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 and 11 entities for setting up payments banks (PBs) in August 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 and Payments Bank offer limited range of products and services to their customers with an objective to provide financial inclusion to untapped and unserved sections of Indian population.
Find below major differences between Small Finance Bank and Payments Bank
Basis of Difference | Small Finance Bank | Payments Bank |
---|---|---|
Who can promote | Individuals/ professional having 10 years experience in finance, NBFCs, microfinance companies, local area banks, etc. | Can be promoted by Telecom Companies, Prepaid Card Issuers, NBFCs, Supermarket Chains, PSUs, etc. |
Promoter's Share | 40% in starting Then can be gradually brought down to 26% in 12 years | 40 % for first Five 5 years from the date of commencement of business |
Capital Required | Minimum Paid Up capital should be 100 Crores | Minimum Paid Up capital should be 100 Crores |
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 Mobile banks |
Demand Deposit | Can accept demand deposit like savings deposit without any fixed limit | Can accept demand deposit like savings deposit only upto Rs. 1 lakh |
Time Deposit | Can accept Time Deposit such as Fixed Deposit and Recurring Deposit | Can't accept Time Deposit such as Fixed Deposit and Recurring Deposit |
Loan | Can offer loan. Must extend 75% loans to priority sectors | Cannot offer loan |
Remittance Services | Can provide Remittance Services | Can provide Remittance Services |
Online Banking Solutions | Can offer online banking services | Can offer online banking services such as bill payment, etc. |
Revenue | Earns revenue through leding services | Earns revenue through transaction charges and fee income for remittances |
Debit Card | Can issue Debit Card and ATM Card | Can issue Debit Card and ATM Card |
Credit Card | Can issue credit cards | Can't issue credit cards |
Target Customers | MSME, Small Farmers, Small Businessman, Unorganized Workers, etc. | Poor migrant labourers, unbanked Indians, under-banked customers, low-income households and small businesses |
Forex Services | Can provide Forex Services and can charge less than commercial bank for these products | |
Adoption of Technology | Should be fully technology driven right from the beginning | Should be fully technology driven right from the beginning |
Branches | For Initial 3 years, 25% branches must be in rural areas to tap those areas | Must have 25% branches in rural areas |
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
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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