For a long time, a large part of the country’s population has been away from banking services. The Reserve Bank of India (RBI) and the government are trying to bring most people under banking services. The RBI has launched a new banking model with this thinking. Loans, deposits and other types of banking facilities are provided to people and traders through banks. Whenever there is talk of banks in India, they are divided on the basis of tasks. Which includes commercial banks, small finance banks, payment banks and cooperative banks. Let us understand the difference between small finance bank and commercial bank.
The Reserve Bank of India (RBI) started the process of approving small finance banks in 2014. So that people away from traditional banks can also get the benefit of financial services. Small Finance Banks play an important role in giving loans to individual customers, small businessmen and agricultural sector at affordable rates. These banks provide facilities like saving accounts, fixed deposits (FD), and loans like common banks. But their biggest focus is to give credit to small customers and small businessmen.
What is small finance bank
Small Finance Bank’s capital should be at least Rs 200 crore. Any institute, microfinance company or NBFC (non-banking financial company) can be converted into a small finance bank after meeting the terms of RBI. The bank has to pay at least 75 percent of its loan amount to small businessmen, farmers and poor. These banks have to impose 50 percent of their total deposits in small loans (up to Rs 25 lakh). Small Finance Bank has been established for rapid expansion of financial services in the country. So that financial services can be provided in such areas where financial services have not yet reached.
What is a commercial bank?
Commercial banks are the banks that provide loans, accumulation facility to public, businessmen and government. There is no restriction on these banks for giving loans etc. They can determine the strategy of doing their business according to their own. Example – State Bank of India, HDFC Bank, Bank of Baroda, Bank of India and Union Bank of India, are all commercial banks. Small finance banks cannot give loans of more than 50 lakhs, while there is no such limit with commercial banks.
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