CSFB becomes first differentiated bank to start operations

Capital Small Finance Bank (CSFB) has started operations after getting the licence, kicking off the era of differentiated banking in the country, Reserve Bank Governor Raghuram Rajan said here today.
CSFB, earlier known as Capital Local Area Bank, was given the licence recently. It became the first Small Finance Bank and the second differentiated bank after Bharti Airtel's Payment Bank to get the final go-ahead.
As CSFB was already operational as a local area bank, it was easy for it to start functioning. According to reports, the Jalandhar-headquartered bank started with 10 branches from yesterday.
"My sense is, this is going to create a revolution in the banking sphere. And a revolution in the banking sphere will create easier access to finance for small entities," Rajan said, delivering the Y B Chavan Memorial Lecture here.

The governor said he expects each of these banks to start with a higher-than-required capital of Rs 500-600 crore, which will entail having an asset book of up to Rs 6,000 crore and stressed that these will not be "tiny banks".
He said there is a need for such entities not to concentrate lending activity in a particular district or sector and expressed confidence the requirement to have 50 per cent of the lending to smaller entities will take care of the risk of concentration.

The RBI has given a total of 22 in-principle nods to small finance banks and payments banks and expects all the banks to get operational in a year, he said.

The introduction of the new entities, through which the RBI is targeting to deepen financial inclusion, was a part of an exercise to make regulation more lighter and transparent, and create level-playing field, Rajan added.
The RBI had first come out with a paper on the need to go beyond universal banks and have differentiated banks serving a special purpose. To start with, it chose to have small finance banks and payments banks, while others like wholesale banks are in pipeline.