Small finance banks playing progressive role in giving credit to small businesses: RBI Deputy Governor Rao | The Financial Express

Small finance banks playing progressive role in giving credit to small businesses: RBI Deputy Governor Rao

Credit and finance for MSMEs: The idea to set up SFBs and payment banks had come up from the “concept of ‘differentiated banking’ in India on the basis of horizontal and vertical differentiation involving the formation of separate stylised banks on the basis of regional or sectoral scope and activities.”

Small finance banks playing progressive role in giving credit to small businesses: RBI Deputy Governor Rao
SFBs represent about 4 per cent of bank branch network in India currently, expanding from less than 1 per cent in 20178, according to Rao.

Credit and finance for MSMEs: India’s small finance banks (SFBs), envisaged to further financial inclusion by the provision of savings vehicles and increase the supply of credit to small businesses and small and marginal farmers, are playing a progressive role in providing credit to them, said M. Rajeshwar Rao, Deputy Governor, Reserve Bank of India (RBI). The idea to set up SFBs and payment banks had come up from the “concept of ‘differentiated banking’ in India on the basis of horizontal and vertical differentiation involving the formation of separate stylised banks on the basis of regional or sectoral scope and activities.”

The concept was discussed in the Dr Nachiket Mor Committee report in 2013. Mor was the then member of the central board of RBI, said Rao delivering the 12th RK Talwar Memorial Lecture on October 21 in Mumbai. Talwar was a noted Indian banker who served as the State Bank of India Chairman from 1959 to 1976.

“The growth of aggregate deposits and credit of SFBs have been significant since March 2018. In the quarter ended March 2022, the deposits grew by 37.3 per cent on year-on-year (YoY) basis while growth in the credit portfolio was 25.6 per cent, as against the growth rate of deposits and credit of scheduled commercial banks at 10.2 per cent and 10.8 per cent respectively,” he added. 

Also read: High processing fees make BNPL difficult for small businesses: Report

While it may seem unfair to compare the growth numbers of banks with SFBs because of scale-effects, even in terms of outreach through bank branches, SFBs represent about 4 per cent of bank branch network in India currently, expanding from less than 1 per cent in 2017, according to Rao. 

Payment banks were also set up with a similar objective of SFBs — to further financial inclusion by providing small savings accounts and payments or remittance services to migrant labour workforce, low-income households, small businesses, other unorganised sector entities and other users.  

As a result, payments banks were able to facilitate around 11.4 crore mobile banking transactions amounting to Rs 17,465 crore in June 2020. This increased to 47.3 crore transactions with an aggregate value of around Rs 46,338 crore in just two years to August 2022, registering 4.1X growth in terms of volume and 2.7X in terms of value, Rao noted. As of August 2022, there were 2.5 crore active users of payments banks using their mobile banking facilities, representing about 2.7 per cent of all active internet users in India.

Subscribe to Financial Express SME newsletter now: Your weekly dose of news, views, and updates from the world of micro, small, and medium enterprises 

Get live Share Market updates and latest India News and business news on Financial Express. Download Financial Express App for latest business news.

First published on: 25-10-2022 at 15:16 IST