Small Finance Banks – A +ve step towards Differentiated Banking
Small Finance Banks – A step towards differentiated banking and may revive the NBFC-MFI sector
- RBI’s guidelines for small finance banks pretty flexible which is probably why the microfinance institutions (MFIs) and non-banking financial companies (NBFCs) should feel rejoiced and rejuvenated. The guidelines may see revival of NBFC-MFI sector
- MFI would have no trouble ensuring that 75% of the net credit comprises priority sector loans ( as they have been doing 100% PSL loans only) ; where large banks have found lending to farmers a risky proposition
- To that extent, the cap on the ticket size of R25 lakh, for 50% of the loans, is irrelevantand the central because the average ticket size could end up being much smaller( < 3 Lakh).
- The guidelines will help MFIs ( MFI-NBFC) to graduate to banksand RBI should get a good number of applications.
- Dilution of restrictionson geographical presence may make Small Finance Bank license.
- The dream of becoming a universal bank at a later stage is also embedded subtly in it.
Looks like a win-win and happy situation for NBFC-MFIs pushing inclusion agenda and treading the path with strong governance model.
However Regulator will remain very “selective” in giving license for small finance banks and may release it only to push financial inclusion agenda.
Manoj Rawat| India | TheRuralBanker | firstname.lastname@example.org
The views expressed are purely personal.