Context:
The Reserve Bank of India (RBI) is likely to approve Fino Payments Bank’s request for conversion into a Small Finance Bank (SFB) by March 2026, sources confirmed. This development comes after RBI recently approved AU Small Finance Bank’s (AU SFB) application to become a Universal Bank on August 7, 2025. Fino Payments Bank is a type of Scheduled Commercial Bank.
Scheduled Commercial Bank (SCB) vs Small Finance Bank (SFB)
| Feature | Scheduled Commercial Banks (SCBs) | Small Finance Banks (SFBs) |
|---|---|---|
| Definition | Banks listed in the Second Schedule of RBI Act, 1934; includes Public, Private, Foreign, and RRBs. | A type of Scheduled Bank focused on financial inclusion for underserved sections. |
| Scope of Operations | Universal banking – can serve all segments (corporates, retail, MSMEs, rural, urban, international). | Primarily serve small borrowers, MSMEs, farmers, low-income groups. |
| Priority Sector Lending (PSL) | Must lend at least 40% of ANBC to PSL. | Must lend at least 75% of ANBC to PSL. |
| Branch Requirement | No specific rural mandate (but regulated by RBI norms). | At least 25% of branches must be in unbanked rural areas. |
| Examples | SBI, HDFC Bank, ICICI Bank, RRBs, etc. | AU SFB, Equitas SFB, Ujjivan SFB, Jana SFB, etc. |
| Capital Requirement | Higher; varies depending on bank type (Private, Public, RRBs). | Minimum ₹200 crore paid-up capital (at licensing). |
| Nature | Broad-based, covers the entire economy. | Specialized, focused on financial inclusion. |
Eligibility to Become a Small Finance Bank (SFB)
- Promoters: Individuals or professionals with at least 10 years’ experience in banking/finance, and entities like NBFCs, MFIs, and Local Area Banks (LABs).
- Resident Requirement: Only resident individuals or entities owned and controlled by residents can promote an SFB.
- Foreign Shareholding: Allowed as per FDI policy for private banks (up to 74%).
- Minimum Capital: ₹200 crore paid-up capital at the time of licensing.
- Promoter Contribution: Minimum 40% of paid-up capital (locked for 5 years), to be brought down to 26% within 12 years.
- Fit & Proper: Promoters must meet RBI’s “fit and proper” norms – integrity, sound track record, and financial health.
- Activities Allowed: Can accept deposits and lend, but mainly to underserved groups like small businesses, farmers, MSMEs, and low-income households.
- Branch Rule: At least 25% of branches must be in unbanked rural centres.
- Priority Sector Lending (PSL): 75% of adjusted net bank credit must go to PSL categories.
