Small is beautiful, but not always

For most SFBs, being a small bank is part of their journey, not the destination

- TAMAL BANDYOPADHYAY

Published in 1973, EF Schumacher's bestseller, Small is Beautiful, challenges what were then the prevailing economic assumptions and offers an alternative perspective on sustainable development, social justice, and human well-being.

The German Rhodes scholar, who taught at Oxford University and was chief economist of Britain's National Coal Board, drew from his wide experience to offer a thorough argument in favour of small-scale, human-centred, beautiful work as a superior alternative to the mainstream ethos of "bigger is better".

Close to a dozen founders/promoters of small finance banks (SFBS) also probably felt the same way when they applied to the Reserve Bank of India (RBI) for a licence about a decade ago to set up such banks. Barring two (one got merged with the biggest small finance bank and another is being merged with a fintech), all have got themselves listed on bourses. If we ask them now how their journey has been, hand on heart, most of them would probably say they want to get rid of the small tag. They would like to become universal banks.

We could practically hear their collective sigh of relief at the RBI's decision to open the door for small finance banks to become big universal banks.

The RBI experimented with the SFB idea to reach out to those borrowers who have not been served by universal banks. SFBs, most of whom were microfinance institutions before they donned this avatar, have done well to serve these borrowers, but when it comes to collecting deposits, they have been struggling since they compete with universal banks for this.

What are the eligibility criteria for an SFB to become a universal bank?

#Scheduled status with a satisfactory track record of performance for a minimum period of five years.

# Shares of the bank should be listed on a recognised stock exchange.

# A minimum net worth of ₹1,000 crore.

# 15 per cent capital adequacy ratio.