The Reserve Bank of India, India’s central banking authority, recently released its “Compendium of Guidelines on Financial Inclusion and Development” for small finance banks, a new classification of institutions intended to increase the “supply of credit to micro- and small enterprises (MSEs), [as well as] agriculture and banking services in unbanked and under-banked regions in the country.”
The guidelines include that small finance banks shall direct 75 percent of their “adjusted net bank credit” toward priority sector lending, which includes funding agriculture, education, housing, and micro- and small businesses. They also provide that the banks may extend credit of up to INR 50 million (USD 778,000) to a single MSE or – to a medium-sized enterprise working in one or more priority sectors – twice that amount. MSEs are defined by RBI as enterprises where “investment in plant and machinery” are under INR 50 million (USD 778,000).
Established in 1935, RBI performs consolidated supervision of commercial banks, non-banking finance companies (NBFCs) and other financial institutions. It also consolidates accounting standards, resolves cases of banking fraud, monitors non-performing assets and supervises the rating model for the banking sector. As of 2016, RBI reported total reserves of INR 24.3 trillion (USD 366 billion).
By Jacob O’Driscoll, Research Associate
Sources and Additional Information
RBI issues Compendium of Guidelines on Financial Inclusion and Development for Small Finance Banks
http://knnindia.co.in/news/newsdetails/economy/rbi-issues-compendium-of-guidelines-on-financial-inclusion-and-development-for-small-finance-banks
RBI Operating Guidelines for Small Finance Banks
https://rbi.org.in/Scripts/NotificationUser.aspx?Id=10636
RBI Priority Sector Lending Definition
https://rbi.org.in/scripts/NotificationUser.aspx?Id=9688
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