Q. With reference to the mandatory requirements for Small Finance Banks (SFBs) in India, consider the following statements:
1.SFBs are mandated to extend 75% of their Adjusted Net Bank Credit (ANBC) to the sectors classified as Priority Sector Lending (PSL).
2.The maximum loan size to a single borrower is restricted to 10% of the SFB’s Capital Funds, and 15% to a group of borrowers.
3.An SFB is allowed to convert into a full-fledged universal bank after an initial lock-in period, provided it meets the stipulated performance and capital requirements.
How many of the statements given above are correct?
Answer: C
Notes:
Explanation:
Statement 1: Correct. SFBs have a more stringent Priority Sector Lending (PSL) requirement compared to universal banks (40%). They are mandated to give 75% of their ANBC to the PSL category.
Statement 2: Correct. The RBI guidelines impose exposure limits on SFBs. The maximum loan size to a single borrower is 10% of the bank’s total Capital Funds, and to a group of borrowers, it is 15%. This is to mitigate concentration risk.
Statement 3: Correct. The RBI guidelines allow both Small Finance Banks and Payment Banks to apply for conversion to a universal bank after a minimum period of five years of satisfactory performance, subject to them meeting the prescribed capital and governance norms.
