Challenges to small finance bank

Abstract

Recently, financial inclusion has been one of the goals of both the central government and central bank of India. Jan-Dhan-Yojana has opened 127 million accounts, and RBI has given licenses to 2 universal banks, 11 payment banks, and 10 small finance banks – all this in last one year. In this paper, analysis of small finance banks has been carried out. The paper looks into the challenges which the license holders might face once they start the operations. For our primary research, we interviewed executives at 4 of the 10 license holders – Mr. H.K.N. Raghavan, CEO at Equitas Holdings, Mr. Rajat Singh, Chief strategy officer at Ujjivan Microfinance, Mr. Rangarajan, Vice President at Janalakshmi Financial Services and Mr. Sarvjit Singh Samra, Managing Director at Capital Local Area Bank. First, we have looked at the need for small banks before looking at the similar international experience in the United States. We have also looked at earlier attempts made by RBI for financial inclusion and why they have failed to deliver what they were expected to. It is important for new set of banks to learn from the mistakes. We looked at the guidelines issued by the RBI and a brief intro of license holders of small finance banks. Small finance bank provides unique opportunities as well as challenges to the license holders, and same are looked in greater detail with valuable inputs from the interviews with executives. We believe that small finance bank can offer potentially disruptive and innovative solutions which will change the face of banking forever.