RBI Grants Licence to Unity Small Finance Bank

On 12th October, 2021, the Reserve Bank of India granted a Small Finance Bank (SFB) license to the Unity Small Finance Bank (USFBL), an equal joint venture between Centrum Financial Services and BharatPe.

  • The bank will now take over the assets and liabilities of Punjab & Maharashtra Cooperative Bank Ltd.
  • Centrum Financial Services will hold 50.1% stake, while BharatPe will hold 49.9% in the small finance bank.

Small Finance Banks

Reserve Bank of India (RBI) on September 15, 2016 granted in-principle licence for small finance banks to ten entities. As of December 2021, there are 12 Small Finance Banks in India.

Activities Allowed

  • Undertake basic banking activities of acceptance of deposits and lending.
  • Can lend only for financial inclusion including small business units, small and marginal farmers, micro and small industries and unorganised sector entities.
  • Allowed to distribute mutual fund products, insurance products and pension products.

Activities Disallowed

  • Not allowed to set up subsidiaries to undertake non-banking financial activities.
  • Other financial and non-financial services activities of the promoters should not be mingled with the working of the bank.

How it is Different from Payment Banks

  • Unlike the payments banks, which can take deposits but not provide credit except to the government, the small finance banks are essentially scaled down versions of commercial banks, with both deposit-taking and loan-making functions.
  • Small Finance Bank provides credit to small business units; small and marginal farmers; micro and small industries; and other unorganised sector entities while the primary objective of setting up payments banks is to improve financial inclusion by providing small savings accounts, payments/remittance services to migrant labour workforce, low-income households, small businesses, and other unorganised sector entities.

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