Eligible promoters: Resident individuals/professionals with 10 years of experience in banking and finance and
companies and societies owned and controlled by residents will be eligible as promoters to set up SFBs. Existing
NBFCs, MFIs and local area banks that are owned and controlled by residents can also opt for conversion into
an SFB. However, joint ventures by different promoter groups for the purpose of setting up SFBs would not be
permitted. Promoter/ promoter groups should be ‘fit and proper’, on the basis of their past record of their sound
credentials and integrity, financial soundness and successful track record of professional experience or of
running their business for at least a period of five years in order to be eligible to promote SFB.

Scope of activities: The SFB is required to primarily undertake basic banking activities of acceptance of deposits
and lending to unserved and underserved sections and supply of credit to small business units, small and marginal
farmers, micro and small industries, and unorganised sector entities, through high technology-low cost
operations. It can also undertake other non-risk sharing simple financial services activities, not requiring any
commitment of own fund, such as distribution of mutual fund units, insurance products, pension products, etc.
without prior approval of RBI, subject to completion of three years from commencement of business of SFB and
after complying with the requirements of the sectoral regulator for such products. The SFB can also become a
Category II Authorised Dealer in foreign exchange business for its clients’ requirements. It cannot set up
subsidiaries to undertake non-banking financial services activities. Further, the other financial and non-financial
services activities of the promoters, if any, should be kept distinctly ring-fenced and not comingled with the
banking business. As per ‘Guidelines for Licensing of Small Finance Banks in Private Sector’ dated November
27, 2014 — Modifications to existing norms’ dated March 28, 2020, RBI has granted a general permission to all
existing SFBs to open banking outlets subject to adherence with unbanked rural centre norms as per RBI circular
on ‘Rationalisation of Branch Authorisation Policy - Revision of Guidelines’ dated May 18, 2017, as amended.
The annual branch expansion plans should be compliant with the requirement of opening at least 25% of its
branches in unbanked rural centres (“URC”) (having population of up to 9,999 as per the latest census). A URC
is a rural centre that does not have a CBS-enabled ‘Banking Outlet’ of a scheduled commercial bank, a SFB, a
payment bank or a regional rural bank nor a branch of local area bank or licensed Co-operative Bank for carrying
out customer based banking transactions. Further, there shall not be any restriction in the area of operations of
SFBs, however, preference will be given to SFBs who in the initial phase to set up the bank in a cluster of under-
banked states/ districts, such as in the North-East, East and Central regions of India. Such SFBs shall not have
any hindrance to expand to other regions in due course. It is expected from the SFBs that it shall be primarily
responsive to local needs. After the initial stabilisation period of five years, and after a review, RBI may liberalize
the requirement of prior approval for annual branch expansion plans and scope of activities of the SFB.

Capital requirement: The bank shall maintain a minimum net worth of 71,000 million at all times It shall be
required to maintain a minimum capital adequacy ratio of 15% of its risk weighted assets on a continuous basis,
subject to any higher percentage as may be prescribed by RBI from time to time. The tier I capital should be at
least 7.5% of the risk weighted asset. The tier II capital should be limited to a maximum of 100% of the tier I
capital. Further, the capital adequacy ratio should be computed as per the Basel committee’s standardised
approaches.

Promoter's contribution: The promoter's minimum initial contribution to the paid-up equity capital of an SFB
shall at least be 40% which shall be locked in for a period of five years from the date of commencement of
business of an SFB. However, if an existing NBFC, MFI or local area bank has diluted the promoter’s
shareholding to less than 40% but above 26%, due to regulatory requirements or otherwise, the RBI may not
insist on the promoter’s minimum initial contribution. Further, the promoter’s shareholding should be brought
down in prescribed phases. If the initial shareholding of the promoters is more than 40%, it should be brought
down to 40% within a period of five years and thereafter to 30% within 10 years and to 26% within 12 years
from the date of commencement of business of an SFB. Further, if an SFB reaches the net worth of 75,000
million, listing will be mandatory within three years of reaching that net worth.

In case of our Bank, our Promoters are required to ensure that their shareholding in our Bank does not fall below
26% of the paid-up Equity Share capital during the first five years from the date of commencement of our
business operations as an SFB, which was January 23, 2017.

Foreign shareholding: Foreign shareholding would be as per the FDI Policy for private sector banks, as
amended from time to time. As per the current FDI Policy, foreign direct investment is permitted up to 49%
under the automatic route and up to 74% under government route in a private sector Indian bank.

The aggregate limit for FPI investments shall be the sectoral caps applicable to our Bank (i.e. up to 49% under
the automatic route and up to 74% under the government approval route).

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