Micro Finance Activities Offered by Small Finance Banks in India

Abstract

This Project gives an exposure of the micro-finance activities being offered by small banks in India whereindetailed study has been provided for registration, performance and features of small banks as well as the micro finance industry in India. Title of the study is "Micro-finance activities offered by small banks in India". In this report, the study of small finance banks has been done which is a recent innovation in the Indian banking structure. These banks are expected to penetrate financial arena by providing basic banking and credit services with a differentiated banking model to the larger population. In doing this, the new SFBs are facing numerous challenges in developing a new, distinguished business model which include structuring of low-cost liability portfolio, technology management, and maintaining the regulatory compliances. All Small Finance Banks offer basic lending and deposit activities, like loans and deposits. However, what makes these activities stand out is that SFBs are required to focus their activities more towards the priority sector, which includes facilitating funds to poor people for housing, providing loans for agriculture and allied activities, funding to micro and small industries, and weaker sections of the society. The Objectives of this study were, to understand the concept of micro finance activities offered by the small finance banks along with the vision of micro finance in India, which concerns the below questions:

• What is the essence of differentiation as compared to regional rural banks or local area banks with the introduction of small finance banks and recognition of source of business opportunity by potential small finance banks?
• How are such new banks leveraging technology?
• How are such new banks building a liability portfolio and providing a wide range of liability products?
• What are their capital management strategies?
• What strategies do these banks visualize to face the challenges of a competitive banking landscape?

The Research Method used in this project is the collection of Wikipedia information, study of economic journals, study of banking regulations, reports of Reserve Bank of India, top of mind views of senior executives of new small finance banks and other informative write ups. This report has some limitations and the main operations related to micro finance adopted by the small banks are not recognized. The norms are changing with time. This study is done in the present scenario without foreseeing future developments. The Findings of the study are based on the results obtained through the interpretation of analysis of the top management views and journals referred to in this study. From the study, it is clear that the new small finance banks are expected to redefine the banking sector in the country with a greater number of players competing in the rural financial services landscape. Based on above Findings and Suggestions, the Conclusion is that the instant challenges for such banks are building the liability product portfolio, meeting the mandatory statutory norms of cash reserve ratio, developing improved digital connectivity with the large scale rural customer base, and designing cost effective banking solutions. Such new banks are yet to come out with an innovative banking business model to develop a path for differentiated banking.