Mumbai: Seeking to promote financial inclusion, RBI Wednesday granted approval to 10 entities, including Ujjivan Financial Services and Equitas Holdings, to set up Small Finance Banks to provide basic banking services to small farmers and micro industries.


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Other entities to get the Reserve Bank's nod are Au Financiers (Jaipur), Capital Local Area Bank (Jalandhar), Disha Microfin (Ahmedabad), ESAF Microfinance (Chennai), Janalakshmi Financial (Bengaluru), RGVN (North East) Microfinance (Guwahati), Suryoday Micro Finance (Mumbai) and Utkarsh Micro Finance (Varanasi).


The in-principle approval has been granted within a month of RBI giving nod to 11 entities for launching Payments Banks.


ALSO READ: Small Finance Bank licence holders start hunt for investors


Besides, the RBI last year provided licences to two entities -- IDFC and Bandhan -- to operate full-fledged banks.


Of them, Bandhan started operations last month while IDFC Bank is expected to go live next month.


The RBI statement said that the "in-principle" approval will be valid for 18 months to enable these entities comply with the guidelines on Small Finance Banks.


The Small Finance Banks can provide basic banking services like accepting deposits and lending to the unbanked sections such as small farmers, micro business enterprises, micro and small industries and unorganised sector entities.


"Going forward, the Reserve Bank intends to use the learning from this licensing round to appropriately revise the guidelines and move to giving licences more regularly, that is, virtually on tap," RBI said.


The central bank had received 72 applications for setting up Small Finance Bank.


Commenting on the approval, Samit Ghosh, CEO, Ujjivan Financial Services said the banking operation would be started within 18 months.


"We have started working on identifying Indian promoters, we have done a little work on that. Today, there is a lot of interest in the segment from the Indian investment community.


"We have to restructure ourself so that within 18 months we are able to launch the bank hopefully," he said. 


Another player who emerged successful -- Janalakshmi


Financial Services -- said that it would create the right legal structure to be able to ensure that it complies with all the conditions that the RBI has laid down.


"Our intention is to convert Janalakshmi into a bank and create a structure that the RBI has suggested under the universal bank category," said V S Radhakrishnan, the CEO of the Bengaluru-based micro-finance institution.


The licences were issued after a preliminary scrutiny of all the applications involving prima facie eligibility, including the ability to raise the minimum initial capital and the status of ownership and control by residents as per the guidelines, was carried out by the RBI team.


The findings of the preliminary scrutiny were presented to an External Advisory Committee (EAC) constituted under the Chairmanship of Usha Thorat, former Deputy Governor, RBI.


As per the guidelines, a Small Finance Bank will primarily undertake basic banking activities of acceptance of deposits and lending to unserved and under-served sections, including small business units, small and marginal farmers, micro and small industries and unorganised sector entities.


Such entities can operate across the country as there is no area of restriction.


However, at least 50 percent of its loan portfolio should constitute loans and advances of up to Rs 25 lakh.


The Small Finance Bank will be subject to all prudential norms and regulations of RBI as applicable to existing commercial banks, including requirement of maintenance of Cash Reserve Ratio (CRR) and Statutory Liquidity Ratio (SLR).


These banks would not enjoy any forbearance from complying with the statutory provisions. They have to follow the norms for scheduled commercial banks.


As far as foreign shareholding is concerned, this would be as per the Foreign Direct Investment (FDI) policy for private sector banks as amended from time to time.


Currently, private banks are allowed foreign investment of 74 percent.