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India's first small finance bank launched

India's first small finance bank launched

  • Capital Small Finance Bank, India's first small finance bank has been launched. It has opened 10 new branches on its inaugural day.
  • The Jalandhar-based bank had been operating as Capital Local Area Bank since January 2000 with 47 branches in five districts of Punjab.
  • It is among the 10 entities that were given the in-principle approval by the Reserve Bank of India (RBI) to set up small finance banks.
  • India has seven branches per 100,000 population compared with 40 branches per 100,000 population in developed countries. This gap aims to be bridged by small finance banks.
  • Earlier, the lender's operations were restricted to five districts in the state - Jalandhar, Hoshiarpur, Kapurthala, Amritsar and Ludhiana. Now, the lender can expand in any part of the country.
  • The Bank plans to grow in a phased manner. In the current financial year, the bank would consolidate it's in Punjab by adding 29 branches.
  • The bank's business is projected to increase four-fold from Rs 3,000 crore as on 31st March 2016 to Rs 12,000 crore and branch network to 216 by March 2021.
  • For Capital Small Finance Bank, exposure to small ticket borrowers is 60 percent. The bank's priority-sector lending is higher at 79 percent of total advances against the RBI norm of 75 percent.
  • Small Finance Bank:-
    • Small finance banks are a type of niche banks in India.
    • The banks with a small finance bank license can provide basic banking service of acceptance of deposits and lending.
    • The aim behind these to provide financial inclusion sections of the economy not being served by other banks, such as small business units, small and marginal farmers, micro and small industries and unorganised sector entities.
    • The firms must have a capital of ₹100 crore.
    • The existing non-banking financial companies (NBFC), micro-finance institutions (MFI) and local area banks (LAB) are allowed to set up small finance banks.
    • The promoters should have 10 years’ experience in banking and finance. The promoters stake in the paid-up equity capital will be 40% initially which must be brought down to 26% in 12 years.
    • Joint ventures are not permitted. Foreign shareholding will be allowed in these banks as per the rules for FDI in private banks in India.
    • The banks will not be restricted to any region. 75% of its net credits should be in priority sector lending and 50% of the loans in its portfolio must in 25 lakh range.

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