In 2015 the RBI did something it had never done before: it licensed banks that were deliberately incomplete. Small finance banks (SFBs) were full banks with a narrow mission: take deposits from, and lend to, the small borrowers that big banks served badly. Payments banks (PBs) went further: they could take small deposits and move money, but could not lend at all. Together they are called differentiated banks, as opposed to the universal banks that can do everything. Eleven years later the results are mixed. The SFBs have grown into a ₹4 lakh crore sector, and AU SFB is on the verge of becoming a universal bank. The payments-bank experiment has shrunk from 11 approvals to five live banks, and in April 2026 the RBI cancelled the licence of the best-known of them, Paytm Payments Bank. This part explains the rules, the numbers and the live questions.
The family of bank types, and where these two fit, is in Part 21, the structure of Indian banking. The RBI's licensing powers under Section 22 of the Banking Regulation Act are covered in Part 18, RBI regulation of banks and NBFCs. Most SFBs began life as microfinance lenders, which are the subject of Part 32, microfinance and financial inclusion, and their priority-sector targets are part of Part 35, priority sector lending.
In the news
- 1 October 2026: payments banks must pay interest as published. An amendment of 30 July 2026 to the RBI's Payments Banks (Interest Rate on Deposits) Directions, 2025 took effect. Payments banks must now pay interest strictly according to the rate schedule disclosed in advance on their websites. Why it matters for the exam: payments banks have their own set of Master Directions, separate from those for commercial banks and SFBs.
- 24 April 2026: Paytm Payments Bank's licence cancelled. The RBI cancelled the licence under Section 22(4) of the Banking Regulation Act from close of business, citing affairs conducted against depositors' interests, management prejudicial to the public interest and breach of licence conditions. It will apply to the High Court for winding up and said the bank has enough liquidity to repay all depositors. The DICGC cancelled its deposit insurance registration from the same date. Why it matters for the exam: India now has five payments banks, not six.
- 27 April 2026: AU SFB awaits its final licence. Reporting its 2025-26 results (deposits of ₹1,52,661 crore), AU said it had filed for the final universal bank licence in March 2026, after the RBI agreed on 6 March to drop the requirement that the new bank be held through a non-operative financial holding company (NOFHC). Why it matters for the exam: AU is the first SFB to get even in-principle approval to become a universal bank.
- 6 April 2026: Ujjivan's application returned. The RBI returned Ujjivan SFB's application to become a universal bank, reportedly wanting a more diversified loan book first, since group microfinance loans were about 45% of it. Why it matters for the exam: meeting the numerical criteria does not guarantee a licence; the RBI also runs a due-diligence test.
- 29 December 2025: SFB profits fall 44%. The RBI's Report on Trend and Progress of Banking showed SFB net profit down 43.8% in 2024-25 to ₹3,496 crore and the gross NPA ratio up from 2.4% to 3.6%, as microfinance stress pushed provisions up 80%. Why it matters for the exam: SFB asset quality is tied to the microfinance cycle.
- 5 December 2025: Fino gets an SFB nod. Fino Payments Bank became the first payments bank to receive in-principle approval to convert into an SFB, under the on-tap SFB guidelines. Why it matters for the exam: it is the first use of the PB-to-SFB route created in 2019.
- 28 November 2025: separate Master Directions. In the RBI's consolidation into 244 Master Directions, SFBs received 30 directions of their own; payments banks got their own set too, including the interest rate directions later amended in 2026. Why it matters for the exam: the numbers 244 and 30 are quotable.
- 28 October 2025: Jana's application returned. The RBI returned Jana SFB's application for a universal bank licence, filed in June 2025, for not meeting the eligibility criteria. Why it matters for the exam: after AU, two more SFBs tried and were turned back within six months.
Why differentiated banks?
The problem in 2013
By 2013 India had a dense network of commercial banks, but large parts of the population still had no bank account, and small borrowers still went to moneylenders or microfinance companies. A universal bank licence is costly (₹500 crore of capital under the 2016 on-tap rules) and comes with a full set of obligations. The RBI's question was whether narrower, cheaper banks could reach the people the big banks did not.
The Nachiket Mor Committee
In 2013 the RBI set up the Committee on Comprehensive Financial Services for Small Businesses and Low Income Households, chaired by Nachiket Mor, a member of the RBI's Central Board. Its report, released on 7 January 2014, argued that specialised banks, each doing a few things well, could reach these customers better than banks built to do everything. Among its recommendations were payments banks, which would offer small savings accounts and payments to low-income households and small businesses.
The RBI took up the idea. It issued draft guidelines on 17 July 2014 and final guidelines for both new types on 27 November 2014:
- Guidelines for Licensing of Small Finance Banks in the Private Sector
- Guidelines for Licensing of Payments Banks
Both licences are granted under Section 22 of the Banking Regulation Act, 1949, so legally both are banks: they keep CRR, insure deposits with the DICGC and are regulated and supervised by the RBI.
The 2015 licensing round
Two external advisory committees screened the applications: one under former Deputy Governor Usha Thorat for SFBs, and one under Nachiket Mor for payments banks.
| Payments banks | Small finance banks | |
|---|---|---|
| Applications | 41 | 72 |
| In-principle approvals | 11, on 19 August 2015 | 10, on 16 September 2015 |
| Validity of approval | 18 months | 18 months |
| Who won | Telecom firms, the postal department, fintechs, a depository, a pharma promoter | Eight microfinance institutions, a vehicle financier and a local area bank |
The 11 payments bank approvals: Aditya Birla Nuvo, Airtel M Commerce Services, Cholamandalam Distribution Services, the Department of Posts, Fino PayTech, National Securities Depository (NSDL), Reliance Industries, Dilip Shanghvi, Vijay Shekhar Sharma (Paytm), Tech Mahindra and Vodafone m-pesa.
The 10 SFB approvals: Au Financiers (Jaipur), Capital Local Area Bank (Jalandhar), Disha Microfin (Ahmedabad), Equitas Holdings (Chennai), ESAF Microfinance (Chennai), Janalakshmi Financial Services (Bengaluru), RGVN (North East) Microfinance (Guwahati), Suryoday Micro Finance (Navi Mumbai), Ujjivan Financial Services (Bengaluru) and Utkarsh Micro Finance (Varanasi).
All ten SFB winners opened as banks. The payments-bank list thinned fast: Cholamandalam, Tech Mahindra and Dilip Shanghvi gave up, and Vodafone m-pesa's bank never became a going concern. Seven payments banks started: Airtel (the first, nationally in January 2017), Paytm, Fino, India Post (first phase on 1 September 2018), Jio, NSDL (October 2018) and Aditya Birla Idea (February 2018), which shut in July 2019.
Small finance banks: the rules
Objective
The 2014 guidelines set the purpose: to further financial inclusion by providing savings products to unserved and underserved people, and credit to small business units, small and marginal farmers, micro and small industries and other unorganised-sector entities, through high-technology, low-cost operations.
The 2019 on-tap guidelines
After the first round, the RBI moved to licensing SFBs "on tap" (applications accepted at any time) under guidelines of 5 December 2019. The main rules now are:
| Rule | 2014 guidelines | 2019 on-tap guidelines |
|---|---|---|
| Minimum paid-up voting equity | ₹100 crore | ₹200 crore (₹100 crore for a converting UCB, rising to ₹200 crore in five years) |
| Promoter holding | At least 40% for five years; down to 30% in 10 years and 26% in 12 years | At least 40% for five years; down to 30% in 10 years and 15% in 15 years |
| Capital adequacy | CRAR 15%, Tier 1 at least 7.5% | Same |
| Loan size | At least 50% of loans up to ₹25 lakh | Same |
| Priority sector | 75% of ANBC | 75% of ANBC when issued (now 60%, see below) |
| Branches | At least 25% in unbanked rural centres | Same; general permission to open outlets |
| Who may convert | NBFCs, MFIs, LABs | Also urban co-operative banks, and payments banks after five years |
Other features: an SFB must list its shares within three years of its net worth first reaching ₹500 crore; it gets scheduled status as soon as it starts business; exposure to a single borrower is capped at 10% of capital funds and to a group at 15%; it may not set up subsidiaries; it may distribute mutual funds, insurance and pensions with RBI approval; and it must use "Small Finance Bank" in its name. Large industrial houses and public sector entities may not promote one.
Priority sector: from 75% to 60%
The defining obligation of an SFB was always its higher priority sector lending (PSL) target: 75% of adjusted net bank credit (ANBC), against 40% for a universal bank. The PSL Master Directions of March 2025 kept 75%; the PSL (Amendment) Directions of 19 January 2026 then cut the SFB target, with immediate effect, to 60% of ANBC or credit equivalent of off-balance-sheet exposure (CEOBSE), whichever is higher. The sub-targets for agriculture (18%), micro enterprises (7.5%) and weaker sections (12%) are the same as for universal banks. In practice SFBs over-achieve: their priority-sector share was 84.3% of ANBC at end-March 2025.
Worked example 1: the PSL requirement. An SFB has ANBC of ₹30,000 crore.
- New target: 60% × 30,000 = ₹18,000 crore of priority-sector loans.
- Under the old rule it needed 75% × 30,000 = ₹22,500 crore.
- A universal bank of the same size would need 40% × 30,000 = ₹12,000 crore.
The cut frees ₹4,500 crore of the SFB's book for non-priority lending, such as larger housing or business loans.
The ₹25 lakh rule
At least half of an SFB's loan portfolio must be loans of up to ₹25 lakh, measured borrower by borrower on an ongoing basis. This keeps the bank "small" in whom it serves, even as its balance sheet grows.
Worked example 2: meeting the loan-size test. An SFB's loan book is ₹20,000 crore, of which ₹9,400 crore is in loans of up to ₹25 lakh.
- Share of small loans: 9,400 ÷ 20,000 = 47%, below the 50% floor.
- If it adds new small loans of x crore, it needs (9,400 + x) ÷ (20,000 + x) ≥ 0.5.
- So 9,400 + x ≥ 10,000 + 0.5x, which gives 0.5x ≥ 600, or x ≥ ₹1,200 crore.
It must add at least ₹1,200 crore of small loans (without growing large loans) to comply.
Capital
SFBs need a CRAR of 15% of risk-weighted assets, with Tier 1 of at least 7.5%, against 11.5% (including the conservation buffer) for a universal bank. The higher bar reflects a riskier, less diversified loan book. SFBs are also outside the newer changes that start on 1 April 2027: the revised Basel III capital rules and expected credit loss (ECL) provisioning do not apply to SFBs or payments banks (see Part 27).
Worked example 3: capital. An SFB has risk-weighted assets of ₹25,000 crore.
- Minimum capital: 15% × 25,000 = ₹3,750 crore, of which Tier 1 at least 7.5% × 25,000 = ₹1,875 crore.
- A universal bank with the same RWAs would need 11.5% × 25,000 = ₹2,875 crore.
So the SFB must hold ₹875 crore more capital for the same risk-weighted book.
The 11 small finance banks
India has 11 SFBs:
| SFB | Origin | Began as a bank |
|---|---|---|
| AU SFB (Jaipur) | Vehicle financier | April 2017 |
| Capital SFB (Jalandhar) | Local area bank | April 2016, the first SFB |
| Equitas SFB (Chennai) | Microfinance | September 2016 |
| ESAF SFB (Thrissur) | Microfinance | March 2017 |
| Jana SFB (Bengaluru) | Microfinance (Janalakshmi) | March 2018 |
| slice SFB | Microfinance (RGVN), as North East SFB | October 2017 |
| Suryoday SFB (Navi Mumbai) | Microfinance | January 2017 |
| Ujjivan SFB (Bengaluru) | Microfinance | February 2017 |
| Utkarsh SFB (Varanasi) | Microfinance | January 2017 |
| Shivalik SFB (Noida) | Urban co-operative bank | April 2021, the first UCB to convert |
| Unity SFB (Mumbai) | Centrum Financial Services and BharatPe | November 2021 |
Three changes since 2015 matter for the exam:
- Unity SFB was set up specifically to take over the failed Punjab and Maharashtra Co-operative Bank, which merged into it on 25 January 2022 (see Part 15).
- Fincare SFB, the old Disha Microfin, merged into AU SFB with effect from 1 April 2024, bringing the count down from 12 to 11.
- North East SFB merged with the fintech lender slice and was renamed slice Small Finance Bank in February 2025; the RBI updated the Second Schedule by notification of 14 May 2025.
The sector in numbers
The RBI's Report on Trend and Progress of Banking 2024-25 gives the combined picture at end-March 2025:
| SFBs | End-March 2024 | End-March 2025 |
|---|---|---|
| Number | 12 | 11 |
| Total assets | ₹3,35,280 crore | ₹4,05,463 crore (+20.9%) |
| Deposits | ₹2,50,896 crore | ₹3,15,401 crore (+25.7%) |
| Loans and advances | ₹2,26,148 crore | ₹2,72,481 crore (+20.5%) |
| Credit-deposit ratio | 90.1% | 86.4% |
| Net profit (year) | ₹6,219 crore | ₹3,496 crore (−43.8%) |
| Gross NPA ratio | 2.4% | 3.6% |
| CRAR | 21.6% | 21.5% |
| Net interest margin | 7.4% | 6.6% |
Three features stand out:
- Expensive deposits, expensive loans. SFBs paid 7.1% on deposits in 2024-25 and earned 16.2% on advances: the widest spread of any bank group. To attract deposits from savers who trust big banks more, they offer higher fixed deposit rates, so term deposits are about 74% of their deposits.
- Uninsured money. Only 39.8% of SFB deposits were insured by the DICGC at end-March 2025, because many depositors keep more than ₹5 lakh in them to earn the higher rates.
- Microfinance risk. Priority-sector loans made up 76.1% of SFB NPAs. The 2024-25 microfinance downturn hit SFBs with large group-loan books: ESAF lost ₹183 crore in the last quarter of 2024-25, and Utkarsh SFB was still reporting losses in 2025-26.
SFBs did deliver on small-business credit: their MSME loan accounts rose from 15.1 lakh in 2022-23 to 35.9 lakh in 2024-25, and MSME credit outstanding from ₹29,661 crore to ₹91,002 crore. They had 7,403 branches at end-March 2025.
Payments banks: the rules
What a payments bank may do
The objective of a payments bank, in the guidelines' words, is to further financial inclusion by providing small savings accounts and payments and remittance services to migrant workers, low-income households, small businesses and other unorganised-sector entities. It may:
- accept demand deposits (savings and current accounts) from individuals, small businesses and others, up to a cap per individual customer;
- issue ATM and debit cards;
- offer payments and remittance services through branches, business correspondents and mobile banking;
- act as a business correspondent of another bank;
- distribute mutual funds, insurance and pension products, with RBI approval.
What it may not do
- No lending of any kind, and so no credit cards.
- No term deposits and no NRI deposits.
- No subsidiaries for non-banking financial business.
- No balance above the cap for any individual customer.
The balance cap
The 2014 guidelines capped the balance at ₹1 lakh per individual customer. On 7 April 2021 the RBI raised the end-of-day maximum to ₹2 lakh, after reviewing the banks' performance, to help them serve small traders, merchants and MSMEs. Because the cap is well below the DICGC cover of ₹5 lakh, almost all payments-bank deposits are insured: the insured deposit ratio was 99.4% at end-March 2025.
Where the deposits go
Since a payments bank cannot lend, the guidelines tell it where to put the money:
- CRR with the RBI on its net demand and time liabilities, like any bank (now 3%; see Part 5);
- at least 75% of its demand deposits in SLR-eligible government securities and Treasury bills maturing within one year;
- at most 25% in current and fixed deposits with other scheduled commercial banks.
Its capital rules are the same as an SFB's on paper: minimum paid-up equity of ₹100 crore, CRAR of 15% (Tier 1 at least 7.5%), a leverage ratio of at least 3% (outside liabilities no more than 33.33 times net worth), and promoters holding at least 40% for five years. At least 25% of its access points must be in rural centres.
Worked example 4: deploying a payments bank's deposits. A payments bank has demand deposits of ₹8,000 crore. Assume T-bills yield 5.5%, deposits with other banks earn 6%, and it pays depositors 2% on average.
- Government securities: at least 75% × 8,000 = ₹6,000 crore, earning 6,000 × 5.5% = ₹330 crore.
- Bank deposits: at most 25% × 8,000 = ₹2,000 crore, earning 2,000 × 6% = ₹120 crore.
- Interest income: 330 + 120 = ₹450 crore. Interest cost: 8,000 × 2% = ₹160 crore.
- Net interest income: 450 − 160 = ₹290 crore, or about 3.6% of deposits.
That sounds healthy, but the bank must also run branches, agents, cards and apps. For the whole sector in 2024-25 the cost-to-income ratio was 96.8%: almost every rupee of income went in costs.
Why the model struggles
The numbers explain why only five payments banks remain. In 2024-25 the six banks then operating had combined deposits of ₹25,605 crore, total assets of ₹37,592 crore and just 81 branches. Their combined net profit was ₹92 crore, a return on assets of 0.3%. Most of their income (₹5,964 crore of non-interest income against ₹1,733 crore of interest income) came from fees on payments and services, not from the spread on deposits. Without lending, a payments bank earns little on its float, and the business of payments itself is fiercely competitive, with UPI transactions free to the customer.
The banks that survive have a large parent network: Airtel's mobile retailers, India Post's more than 1.3 lakh post offices, Fino's merchant points, or a market-infrastructure parent (NSDL). Airtel Payments Bank turned profitable in 2021, got scheduled status on 5 January 2022, and reported a profit again in 2025-26.
The five payments banks
| Payments bank | Promoter | Note |
|---|---|---|
| Airtel Payments Bank | Bharti Airtel | First to start (January 2017) |
| India Post Payments Bank | Department of Posts (government) | Works through post offices and postmen |
| Fino Payments Bank | Fino PayTech | In-principle approval to become an SFB, 5 December 2025 |
| Jio Payments Bank | Reliance Industries | Non-scheduled at end-March 2025 |
| NSDL Payments Bank | National Securities Depository | Non-scheduled at end-March 2025 |
The fall of Paytm Payments Bank
Paytm Payments Bank (PPBL) was promoted by Vijay Shekhar Sharma, with One 97 Communications (Paytm's parent) holding 49%. It handled the wallets, FASTags and UPI handles of the Paytm app. Its decline came in three steps:
- 11 March 2022: the RBI barred it from onboarding new customers, citing material supervisory concerns.
- 31 January 2024: the RBI barred it from accepting further deposits, credits or top-ups in customer accounts, wallets, FASTags and National Common Mobility Cards after 29 February 2024, a deadline extended on 16 February 2024 to 15 March 2024. Customers could still withdraw their balances.
- 24 April 2026: the RBI cancelled the licence under Section 22(4) of the BR Act. Its grounds, under Section 22(3), were that the bank's affairs were conducted against the interests of the bank and its depositors, that its management was prejudicial to the public interest, that no useful purpose would be served by letting it continue, and that it had failed to comply with the conditions of its licence. The RBI will seek winding up in the High Court; the bank has enough liquidity to repay all its deposits.
The lessons for the exam: a payments bank must be run at arm's length from its fintech parent; KYC and anti-money-laundering failures are licence-threatening; and the parent app (Paytm's UPI, QR codes and soundboxes) can survive the loss of its bank by working with partner banks.
Changing lanes: from one licence to another
The RBI designed differentiated licences as stepping stones. Three routes now exist.
Into an SFB
NBFCs, microfinance institutions and local area banks could convert from 2015; urban co-operative banks (Shivalik, 2021) and payments banks were added in 2019. A payments bank must be resident-controlled and have completed five years of operations. It must reach ₹200 crore of net worth within 18 months of in-principle approval or before starting, whichever is earlier, and convert, merge or close its existing branches within three years. Fino is the first to get this far, with in-principle approval on 5 December 2025; its 18 months run to about June 2027.
From SFB to universal bank
The 2014 guidelines said the move would not be automatic: an SFB would need the universal bank's minimum capital, a five-year satisfactory record and RBI due diligence. The RBI's circular of 26 April 2024 on voluntary transition made this concrete. An SFB must:
- have scheduled status and a satisfactory record of at least five years;
- be listed on a recognised stock exchange;
- have a net worth of at least ₹1,000 crore at the end of the previous quarter (audited);
- meet the CRAR requirement for SFBs;
- have a net profit in each of the last two financial years;
- have gross NPA of 3% or less and net NPA of 1% or less in each of the last two financial years.
It must also have a diversified loan portfolio, which is where most applicants have stumbled.
| SFB | Applied | Outcome |
|---|---|---|
| AU SFB | 3 September 2024 | In-principle approval on 7 August 2025, the first universal bank approval in about a decade; NOFHC condition relaxed on 6 March 2026; final licence applied for in March 2026 |
| Jana SFB | June 2025 | Application returned in October 2025 for not meeting the criteria |
| Ujjivan SFB | – | Application returned in April 2026; the RBI reportedly wants a more diversified loan book first |
Worked example 5: the transition test. SFB X has been scheduled for seven years, is listed, has a net worth of ₹1,150 crore and a CRAR of 18%, and made profits in both of the last two years. Its gross NPA ratio was 2.8% two years ago and 3.4% last year; net NPA 0.9% and 1.2%.
- Five years, listing, net worth (₹1,150 crore ≥ ₹1,000 crore), CRAR (18% ≥ 15%) and profits: all pass.
- Gross NPA: 3.4% > 3% last year: fails. Net NPA: 1.2% > 1% last year: fails.
SFB X is not eligible until it has two clean years in a row.
Once a universal bank
A converted bank loses the SFB-specific restrictions (the ₹25 lakh rule, the higher PSL target and the 15% CRAR) and takes on the universal bank's: the 40% PSL target, Basel III with the capital conservation buffer, and from 2027 ECL provisioning. AU's in-principle approval originally required a NOFHC structure; since March 2026 that applies only if AU or its promoters set up another group entity.
Have differentiated banks worked?
Where they succeeded
- SFBs reached small borrowers. They lend mostly to microfinance, MSME, vehicle and affordable-housing customers, comfortably beat their PSL target and more than doubled their MSME borrower accounts in two years.
- Microfinance lenders got deposit funding. Former MFIs that once relied on borrowing from banks now fund themselves mainly with deposits (SFB deposits grew 25.7% in 2024-25).
- Payments banks spread access points. India Post Payments Bank uses post offices and postmen, and Airtel and Fino use retail agents, to reach villages without bank branches.
- A ladder works. Capital became an SFB, AU is close to a universal licence and Fino is moving from payments bank to SFB.
Where they fell short
- The payments-bank model is thin. Of 11 approvals, five banks remain; their combined profit is tiny and their deposits were only about ₹25,600 crore at end-March 2025. Free UPI payments from any bank account reduced the need for a separate payments-only bank.
- Governance failures. Paytm Payments Bank lost its licence after years of KYC and compliance problems.
- SFB concentration risk. Heavy exposure to group microfinance loans makes SFB profits cyclical, as 2024-25 showed, and has blocked the path to universal banking for Ujjivan.
- Deposit trust. SFBs must pay higher rates to win deposits, and a large share of those deposits is uninsured.
Common exam traps
- SFBs can lend; payments banks cannot. Both take deposits. Only SFBs give loans.
- Payments banks cannot issue credit cards, but they can issue debit and ATM cards.
- The payments-bank cap is ₹2 lakh (since April 2021), per individual customer, at the end of the day. ₹1 lakh was the original 2014 limit. Do not confuse it with the DICGC cover of ₹5 lakh.
- Capital: ₹200 crore for SFBs under the 2019 on-tap rules (₹100 crore in 2014); ₹100 crore for payments banks; ₹500 crore for universal banks.
- CRAR is 15% for both SFBs and payments banks, not 9% or 11.5%.
- SFB PSL target is now 60% of ANBC (from 19 January 2026), not 75%. The 75% figure is in the original guidelines.
- 50% of SFB loans must be up to ₹25 lakh (not ₹25 crore, not 75%).
- 75% of payments-bank deposits go into G-secs and T-bills of up to one year; at most 25% into deposits with other banks.
- The first SFB to start was Capital SFB (April 2016); the first payments bank was Airtel (January 2017). The first SFB to get in-principle approval to become a universal bank is AU (August 2025).
- Count: 11 SFBs and 5 payments banks today. The DICGC count of 6 payments banks is for 31 March 2026, before Paytm's licence was cancelled.
- Paytm's licence was cancelled in April 2026, not January 2024. In 2024 the RBI only stopped fresh deposits.
Key facts at a glance
| Committee behind payments banks | Nachiket Mor Committee on Comprehensive Financial Services for Small Businesses and Low Income Households (report 7 January 2014) |
| Licensing guidelines | 27 November 2014 (both); SFB on-tap guidelines 5 December 2019 |
| 2015 in-principle approvals | 11 payments banks (19 August 2015, from 41 applications); 10 SFBs (16 September 2015, from 72 applications) |
| SFBs today | 11: AU, Capital, Equitas, ESAF, Jana, slice, Shivalik, Suryoday, Ujjivan, Unity, Utkarsh |
| Payments banks today | 5: Airtel, India Post, Fino, Jio, NSDL |
| SFB minimum capital | ₹200 crore (on-tap); ₹100 crore for a converting UCB at start |
| PB minimum capital | ₹100 crore |
| CRAR | 15% for both (Tier 1 at least 7.5%) |
| SFB lending rules | 60% PSL (from 19 January 2026; was 75%); at least 50% of loans up to ₹25 lakh |
| PB balance cap | ₹2 lakh per individual customer (from April 2021; ₹1 lakh before) |
| PB deployment | At least 75% of demand deposits in SLR G-secs/T-bills up to 1 year; at most 25% in bank deposits |
| SFB to universal bank | Circular of 26 April 2024: listed, ₹1,000 crore net worth, 5 years, profits for 2 years, GNPA ≤ 3%, NNPA ≤ 1% |
| AU SFB | In-principle universal bank approval 7 August 2025; final licence pending |
| Fino Payments Bank | In-principle SFB approval 5 December 2025 |
| Paytm Payments Bank | New customers barred 11 March 2022; deposits stopped from 15 March 2024; licence cancelled 24 April 2026 |
| SFB sector, end-March 2025 | Assets ₹4.05 lakh crore; deposits ₹3.15 lakh crore; GNPA 3.6%; CRAR 21.5% |
| PB sector, end-March 2025 | Six banks, 81 branches, deposits ₹25,605 crore, net profit ₹92 crore |
Exam corner: what to remember
- Differentiated banks: SFBs (deposits plus small loans) and payments banks (deposits and payments, no loans), both licensed under Section 22 of the BR Act.
- Nachiket Mor Committee (report January 2014) proposed payments banks; Usha Thorat chaired the committee that screened SFB applications.
- Guidelines 27 November 2014; approvals 19 August 2015 (11 PBs) and 16 September 2015 (10 SFBs); SFB on-tap from 5 December 2019.
- SFB: ₹200 crore capital, 15% CRAR, 60% PSL (was 75%), 50% of loans up to ₹25 lakh, 25% of branches in unbanked rural centres, listing once net worth reaches ₹500 crore.
- PB: ₹100 crore capital, 15% CRAR, ₹2 lakh balance cap, no lending, no credit cards, no NRI deposits, 75% of deposits in short-term G-secs.
- 11 SFBs, 5 PBs. Paytm Payments Bank's licence was cancelled on 24 April 2026.
- AU SFB: first SFB with in-principle universal bank approval (7 August 2025). Jana and Ujjivan: applications returned. Fino: first PB to get an SFB nod (5 December 2025).
- SFB to universal bank: listed, ₹1,000 crore net worth, five years, profits for two years, GNPA ≤ 3% and NNPA ≤ 1%.
Test yourself
The committee whose 2014 report recommended the creation of payments banks was chaired by:
Show answer
Answer: (b) The Committee on Comprehensive Financial Services for Small Businesses and Low Income Households, chaired by Nachiket Mor, reported on 7 January 2014.
What is the maximum end-of-day balance a payments bank may hold for an individual customer?
Show answer
Answer: (c) The cap was raised from ₹1 lakh to ₹2 lakh in April 2021.
Which of the following can a payments bank NOT do?
Show answer
Answer: (d) Payments banks cannot lend, so they cannot issue credit cards.
Under the on-tap guidelines of 2019, the minimum paid-up voting equity capital for a new small finance bank is:
Show answer
Answer: (a) It was raised from ₹100 crore under the 2014 guidelines to ₹200 crore in 2019.
On 24 April 2026 the RBI cancelled the banking licence of:
Show answer
Answer: (d) The licence was cancelled under Section 22(4) of the Banking Regulation Act, and the RBI will seek winding up in the High Court.
Which payments bank received the RBI's in-principle approval on 5 December 2025 to convert into a small finance bank?
Show answer
Answer: (b) Fino was the first payments bank to get this approval under the on-tap SFB guidelines.
An SFB has a loan book of ₹12,000 crore, of which ₹5,400 crore is in loans of up to ₹25 lakh. What is the minimum amount of new loans of up to ₹25 lakh it must add, with no other change, to meet the 50% requirement?
Show answer
Answer: (b) It needs (5,400 + x) ÷ (12,000 + x) ≥ 0.5, so 0.5x ≥ 600 and x ≥ ₹1,200 crore.
A payments bank has demand deposits of ₹4,000 crore. The minimum it must invest in SLR-eligible government securities and T-bills of up to one year, and the maximum it may keep in deposits with other banks, are:
Show answer
Answer: (a) At least 75% × 4,000 = ₹3,000 crore in government securities, and at most 25% × 4,000 = ₹1,000 crore with other banks.
Which of these is NOT a condition for an SFB to apply to become a universal bank under the RBI circular of 26 April 2024?
Show answer
Answer: (d) There is no metropolitan branch condition; the other three are among the six criteria, with five years' record, CRAR and two years of profits.
An SFB's adjusted net bank credit is ₹40,000 crore. Under the PSL rules in force since 19 January 2026, its overall priority-sector target is:
Show answer
Answer: (b) The SFB target is 60% of ANBC: 60% × 40,000 = ₹24,000 crore (₹30,000 crore would be the old 75% target).
Further reading
- Report of the Committee on Comprehensive Financial Services for Small Businesses and Low Income Households (Nachiket Mor, January 2014): the intellectual origin of differentiated banking in India.
- Guidelines for Licensing of Payments Banks (RBI, 27 November 2014): the short, readable rulebook for payments banks, still the base for exam questions.
- Guidelines for 'on tap' Licensing of Small Finance Banks in the Private Sector (RBI, 5 December 2019): today's SFB rules, including the payments-bank conversion route.
- Voluntary transition of Small Finance Banks to Universal Banks (RBI circular, 26 April 2024): the six eligibility tests in one page.
- Report on Trend and Progress of Banking in India 2024-25, Chapter IV: the official numbers on SFB and payments-bank balance sheets, profits and asset quality.
- RBI press release on Paytm Payments Bank, 24 April 2026: the legal grounds for a licence cancellation, set out section by section.
Sources
- RBI, Committee on Comprehensive Financial Services for Small Businesses and Low Income Households: title and date (7 January 2014) of the Nachiket Mor report (accessed 24 October 2026)
- RBI, Guidelines for Licensing of Payments Banks: objective, permitted activities, ₹1 lakh initial cap, no lending, no credit cards, no NRI deposits, 75%/25% deployment, ₹100 crore capital, 15% CRAR, 3% leverage ratio, 40% promoter holding, BC role, no subsidiaries (accessed 24 October 2026)
- RBI, Guidelines for Licensing of Small Finance Banks in the Private Sector (2014): objective, ₹100 crore capital, promoter dilution to 26% in 12 years, 75% PSL, 50% of loans up to ₹25 lakh, 15% CRAR, transition clause (accessed 24 October 2026)
- RBI, Guidelines for 'on tap' Licensing of Small Finance Banks (2019) and RBI press release, 5 December 2019: ₹200 crore capital, UCB and payments-bank conversion, promoter dilution to 15% in 15 years, listing at ₹500 crore net worth, exposure limits, scheduled status, 18-month validity (accessed 24 October 2026)
- RBI press release, 19 August 2015: 11 payments-bank approvals from 41 applications; Nachiket Mor's advisory committee (accessed 24 October 2026)
- RBI press release, 16 September 2015: 10 SFB approvals from 72 applications; Usha Thorat's advisory committee (accessed 24 October 2026)
- RBI press release, 7 April 2021 (Statement on Developmental and Regulatory Policies) and RBI circular, 8 April 2021: payments-bank balance cap raised from ₹1 lakh to ₹2 lakh (accessed 24 October 2026)
- RBI, Banks in India: current list of 11 SFBs and 5 payments banks (accessed 24 October 2026)
- RBI, Report on Trend and Progress of Banking in India 2024-25, Chapter IV: SFB and payments-bank balance sheets, profits, NPAs, CRAR, spreads, PSL achievement of 84.3%, MSME credit, insured deposit ratios, branches, one SFB merger effective 1 April 2024, Jio and NSDL non-scheduled (accessed 24 October 2026)
- RBI, PSL (Amendment) Directions, 19 January 2026: SFB target cut from 75% to 60% of ANBC with immediate effect (accessed 24 October 2026)
- RBI, Master Directions on Priority Sector Lending, 2025: SFB target of 60% of ANBC or CEOBSE and sub-targets (accessed 24 October 2026)
- RBI press release, 24 April 2026: cancellation of Paytm Payments Bank's licence, Section 22(3) grounds, earlier restrictions of 11 March 2022, 31 January 2024 and 16 February 2024, winding up and liquidity (accessed 24 October 2026)
- DICGC notice on Paytm Payments Bank, April 2026: deposit insurance registration cancelled from 24 April 2026 (accessed 24 October 2026)
- Wikipedia, Paytm Payments Bank: ownership; 29 February 2024 deadline extended to 15 March 2024; wallets, FASTags and NCMC cards covered (accessed 24 October 2026)
- RBI press release, 5 December 2025: in-principle approval to Fino Payments Bank to convert into an SFB (accessed 24 October 2026)
- RBI press release, 7 August 2025: in-principle approval to AU SFB to become a universal bank (accessed 24 October 2026)
- RBI circular, Voluntary transition of SFBs to Universal Banks, 26 April 2024: the six eligibility criteria (accessed 24 October 2026)
- AU SFB press release, 27 April 2026: deposits of ₹1,52,661 crore at 31 March 2026; NOFHC change; final licence filed March 2026 (accessed 24 October 2026)
- Angel One, March 2026: RBI letter of 6 March 2026 relaxing the NOFHC requirement (accessed 24 October 2026)
- Business Standard, October 2025: Jana SFB's application returned for not meeting criteria (accessed 24 October 2026)
- Ujjivan SFB media coverage (The Economic Times, 6 April 2026) and Outlook Business: Ujjivan's application returned; group loans about 45% of its book (accessed 24 October 2026)
- TaxGuru, Payments Banks interest rate amendment: amendment of 30 July 2026, effective 1 October 2026, to the Payments Banks (Interest Rate on Deposits) Directions, 2025 (accessed 24 October 2026)
- RBI press release, 28 November 2025: 244 consolidated Master Directions (accessed 24 October 2026)
- RBI circular RBI/2025-26/38, 21 May 2025: North East SFB renamed slice SFB in the Second Schedule, notification of 14 May 2025 (accessed 24 October 2026)
- Wikipedia, Small finance bank, Payments bank, Airtel Payments Bank, India Post Payments Bank and Aditya Birla Payments Bank: start dates of individual banks, Fincare's merger into AU, surrendered approvals, Airtel's scheduled status (accessed 24 October 2026)
- Bank results for 31 March 2026, deposits in ₹ crore: Equitas Q4 FY26 earnings call (46,533); Ujjivan business update (45,661); Jana Q4 FY26 press release (35,784); Free Press Journal on ESAF (25,850); Utkarsh Q4 FY26 press release (21,654); Business Standard on Suryoday (13,958); CRISIL rating rationale for Unity SFB, 31 July 2026 (12,045); Capital SFB business update (10,018, provisional) (accessed 24 October 2026)