IIBF SFB cheat sheet

SFBs are licensed under Section 22 of the Banking Regulation Act, 1949; minimum paid-up capital for new licences is ₹200 crore, and promoters must hold at least 40% of paid-up capital initially, locked in for five years.

Promoter eligibility: resident individuals and entities with at least 10 years of experience in banking or finance; joint ventures are not permitted, and large industrial houses cannot be promoters.

SFBs must be fully networked and technology-driven, and at least 50% of their loan portfolio must comprise loans of up to ₹25 lakh.

Foreign shareholding is permitted up to 74%, of which FDI up to 49% is under the automatic route and beyond that requires government approval; the minimum promoter contribution of 40% must be maintained.

SFBs must list within three years of reaching net worth of ₹500 crore, subject to a listing agreement with the stock exchanges.

SFBs must achieve a minimum 75% of Adjusted Net Bank Credit in Priority Sector Lending, with at least 50% of loans in ticket sizes up to ₹25 lakh.

An SFB can convert into a universal bank after five years of satisfactory performance, subject to a minimum net worth of ₹500 crore, a CRAR of 15%, and an SCR of 50%.

SFBs must maintain PSL at 75% of Adjusted Net Bank Credit (ANBC) or Credit Equivalent of Off-Balance Sheet Exposure, whichever is higher, against 40% for universal banks.

Within the 75% PSL target, at least 50% of ANBC must be loans in ticket sizes of ₹25 lakh or less, in categories prescribed by RBI.

Micro loans up to ₹1 lakh per borrower count toward the small and marginal farmers and weaker sections sub-targets, subject to RBI's classification.

SFBs are not required to meet the 18% agriculture and 7.5% micro-enterprise sub-targets applicable to universal banks; instead they comply with the ₹25 lakh ticket-size norm.

PSL shortfall is deposited into the Rural Infrastructure Development Fund (RIDF) or other funds with NABARD, at rates notified by RBI.

Financial inclusion obligations include opening at least 25% of branches in unbanked rural centres (population below 10,000), as per RBI's branch authorisation policy.

SFBs must offer a Basic Savings Bank Deposit Account (BSBDA) with no minimum balance and issue RuPay cards to eligible customers under the PMJDY framework.

SFBs accept demand deposits (savings and current) and time deposits, but cannot issue credit cards or offer non-fund-based facilities such as letters of credit and bank guarantees.

Interest rates on savings and term deposits are deregulated; SFBs typically offer higher rates than universal banks, which increases their cost of funds.

Deposit insurance covers up to ₹5 lakh per depositor per bank under the DICGC Act, as amended in 2021.

Premature withdrawal of term deposits above ₹5 lakh or ₹1 crore attracts a penalty as per the bank's board-approved policy; the penalty cannot exceed the contractual rate.

The bank must give a minimum notice of 30 days for changes in interest rates on savings deposits, effective from the date of the circular.

KYC-compliant customers can open accounts via video-based customer identification (V-CIP), subject to RBI's Master Direction on KYC.

Customer grievance redressal is governed by RBI's Integrated Ombudsman Scheme, 2021; the internal ombudsman mechanism is mandatory for banks with 10 or more branches.

Microfinance lending follows the RBI's 2022 Master Direction on microfinance: household income limits of ₹3 lakh (rural) and ₹5 lakh (urban/semi-urban), and a maximum indebtedness of ₹2 lakh per borrower.

The MFI pricing cap is the lower of the cost of funds plus a margin of 10%, or the average base rate of the five largest commercial banks multiplied by 2.75.

Group lending uses Joint Liability Group (JLG) or Self Help Group (SHG) models, with a maximum group size of 4-5 members per JLG and 10-20 per SHG.

Small business lending uses cash-flow-based appraisal for micro and small enterprises, with turnover-based working capital limits per Nayak Committee norms.

Collateral-free loans under the CGTMSE scheme cover up to ₹5 crore per borrower; SFBs are eligible lending institutions.

The appraisal must assess the borrower's repayment capacity, credit history (CIBIL/credit bureau score), and the end-use of funds; for MSMEs, GST returns and bank statements are primary evidence.

Loans to micro and small enterprises up to ₹25 lakh qualify for PSL under the ₹25 lakh ticket-size norm; loans are classified as standard, SMA-0/1/2, substandard, doubtful, and loss assets per RBI's IRAC norms.

Minimum Capital to Risk-Weighted Assets Ratio (CRAR) is 15% for SFBs, against 11.5% for universal banks (including the capital conservation buffer).

Tier-I capital must be at least 7.5% of risk-weighted assets, and Common Equity Tier-I at least 6%.

The Liquidity Coverage Ratio (LCR) must be at least 100%, with a minimum 50% of High-Quality Liquid Assets (HQLA) held as government securities.

The Net Stable Funding Ratio (NSFR) must be at least 100%, and the leverage ratio must be at least 4%.

ALM analysis covers interest rate risk in the banking book (IRRBB) through gap analysis and earnings-at-risk (EaR) and economic value of equity (EVE) metrics.

Asset classification follows RBI's IRAC norms: 90-day overdue is non-performing; SMA classification is SMA-0 (1-30 days), SMA-1 (31-60 days), SMA-2 (61-90 days).

Banks must maintain a minimum 18% of Net Demand and Time Liabilities (NDTL) as SLR and a CRR of 4% of NDTL; SFBs are subject to the same CRR and SLR as universal banks.

Provisioning: 0.40% standard asset provision for commercial loans; 15% for substandard secured, 25% for substandard unsecured, 40% for doubtful, and 100% for loss assets.

KYC Master Direction (RBI, 2016 as amended) mandates Customer Due Diligence, risk categorisation (low/medium/high), and periodic KYC updation: 10 years for low-risk, 8 years for medium-risk, and 2 years for high-risk customers.

Cash Transaction Reports (CTR) are filed for cash transactions above ₹10 lakh (or its foreign currency equivalent) in a month; Suspicious Transaction Reports (STR) are filed within 7 days of establishing suspicion.

The Financial Intelligence Unit-India (FIU-IND) is the designated authority under the PMLA, 2002; STRs and CTRs are filed through the FINnet portal.

Politically Exposed Persons (PEPs) require enhanced due diligence, senior management approval, and source-of-funds verification.

Sanctions screening must be done against the UNSC, OFAC, and other sanctions lists, with a freeze without prior notice for designated entities under the UNSC Act, 1947.

Fraud risk management follows RBI's 2024 Master Direction on Fraud Risk Management: early warning signals, a Fraud Monitoring Committee, and reporting to the Central Fraud Registry (CFR).

Fraud cases above ₹1 lakh must be reported to the RBI through the CFR; cases above ₹1 crore must be reported to the Board and the Special Committee of the Board.

Whistleblower policy, a code of conduct, and an independent compliance function headed by a Chief Compliance Officer are mandatory for SFBs.