To rope in more individuals in the banking net and as part of its financial inclusion drive, government of India gave nod to differential banking which opened doors to Payments Banks and Small Finance Banks. Currently there are as many as 8 Small Finance banks that include namely Capital Small Finance Bank Ltd., Suryoday Small Finance Bank Ltd, Equitas Small Finance Bank Ltd, Utkarsh Small Finance Bank Ltd Ujjivan Small Finance Bank Ltd, ESAF Small Finance Bank Ltd and AU Small Finance Bank. And RBI gave nod to 10 entities for the operation under the category
These banks offer an array of services from current account, S/B account, deposits, locker and loans. Loans are pretty costly with them, however deposits come at an attractive interest rates. It is to be noted that these banks offer deposit rates that exceeds even the returns offered by commercial banks for eg: r Suryoday Small Finance Bank Ltd for tenures in the range of 12 months to 36 months offers the highest rate of 8.75% to 9%.
Who will be covered under this new banking ambit
Categories that are not or are under-served by other commercial banks including small and medium enterprises, micro and small industries, small and marginal farmers and entities in the unorganized sector shall be aimed at by this niche banking group.
As per the regulations, two of the Small Finance Banks, including Ujjivan and Equitas have their entities listed on the Indian bourses.AU Financiers is set to hit the primary market this June with an IPO issue.
Challenges for the new-age bankers
The main challenge the previous micro-finance institutions now incorporated as Small Finance banks are confronting is that of high bad debts. And technology has come for little help to them. Nonetheless, on deposits front the banks are doing great thanks to the demonetization move.