Is a Small Finance Bank, Small bank or small finance lending bank?

Words are so important.

I was reading this panel discussion in Mint South India Banking Conclave:

Even though you are a small finance bank, you are subjected to higher capital requirements. Are you fine with the regulations?

Ghosh: Small finance banks (SFBs) are specialized institutions, we have the objective of financial inclusion. We have already got a set of norms which we have to comply with like 75% priority sector lending, etc. As we progress as a bank, there are a different set of challenges which we are going to face. It is very important to have a constant dialogue with the regulator. As an example, we all are going to become members of the state-level bankers committee—it assigns various targets for regular commercial banks. Our portfolio is already 100% priority sector loans (PSLs); to that extent things have to be modified. Loans on our book should automatically be classified as PSLs.

Is there any other example in your mind, Vasudevan?

Vasudevan: SFBs are small… Many people believe that the word small is a reflection of the word bank and not the word finance. Many people call us Equitas Small Bank. It is reflected in the guidelines you see, Rs100 crore capital we need and commercial banks need Rs500 crore….

We have (to meet) 75% PSL, it is very onerous. For people like us, there is no problem. Second part is 50% of portfolio is less than Rs25 lakh, these are the two defining characteristics of an SFB. We have no problems with it.

The question is should I aspire to be a small bank or be a big bank? Suppose you have capital of more than Rs500 crore, can you be given the flexibility of a universal bank? We all have invested heavily in technology. We are also filing periodical returns, the only difference is that we are in Basel II (banking norms, less onerous than Basel III).

The two things are obviously not the same. A small bank can give big finance and a big bank can give small finance. Thus, SFB is likely both – a small bank which has been licenced to provide small finance..

Play of words but really important for conceptual clarity..

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