These banks are designed to serve specific, underserved segments of the economy. Their key characteristics are:
- Provide loans to MSMEs (Micro, Small, and Medium Enterprises).
- Cater to the unorganised sector of urban areas.
- Work on a model of low value and high volume transactions.
Payments Bank
Recommended by the Nachiket Mor Committee.
The first Payments Bank in India was Airtel Payment Bank.
Small Finance Banks
Operate under the recommendations of the Usha Thorat Committee.
The first Small Finance Bank was Capital Small Finance Bank.
NBFCs provide financial services but do not hold a full banking license. They cannot use the word "Bank" in their names because they do not provide all banking facilities (e.g., they primarily provide loans).
Criteria for NBFC License
- Must be a Limited or Private Limited company.
- Must have a Net Owned Fund of at least ₹10 crore.
Mortgage Guarantee Companies
Companies where at least 90% of business turnover comes from mortgage guarantee business.
Systematically Important Core Investment Companies
Companies involved in the business of managing shares and stocks.
Microfinance Institutions (NBFC-MFIs)
NBFCs that provide loans at a micro level. The income criteria for borrowers are:
- Rural Area: Annual income must not exceed ₹1,25,000.
- Urban Area: Annual income must not exceed ₹2,00,000.
- Narrow Banking: A low-risk approach where banks either do not grant loans or only provide highly secured loans.
- Universal Banking: Banks provide all types of financial facilities, including savings/current accounts, RDs, FDs, insurance, shares, stocks, etc.
- Islamic Banking: Operates on a strict no-profit, no-loss policy, based on Islamic principles. It is not practiced in India and is found in developed Islamic countries.
- Green Banking: Environmentally friendly banking. Examples include not providing paper receipts and using solar-powered ATMs.
- Multiple Banking: Different banks individually provide their facilities to a single customer.
- Syndicate Banking: When multiple banks join together to provide facilities to a single customer. The loan provided through this method is called Consortium Finance.
1. Which committee suggested the formation of Differential/Niche Banks?
2. What was the first Payments Bank in India?
3. What is the minimum Net Owned Fund required for an NBFC license?
4. Which type of banking focuses on being environmentally friendly by using solar-powered ATMs and avoiding paper receipts?
5. What is the term for a loan provided by multiple banks joining together to serve a single customer?