Economics · Banking Regulation
A large Non-Banking Financial Company (NBFC) specializing in micro-credit has seen exponential growth over the last 5 years. With an asset size now exceeding 50,000 Crore and a customer base of 10 million, the management is considering applying for a conversion into a Small Finance Bank (SFB). The move is motivated by the desire to access low-cost public deposits and provide a wider range of financial products. However, the transition involves significant regulatory hurdles, including a change in the capital structure and compliance with stringent priority sector lending (PSL) norms. Which of the following is the most significant operational change the NBFC will face immediately upon its conversion into an SFB?
Verified Solution4 OptionsUpdated: October 2026👁️1 View
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- 1It will be prohibited from using any digital banking tools for the first 10 years of its operation.
- 2It will no longer be regulated by the RBI and will fall under the Ministry of Finance directly.
- 3It must immediately achieve a Priority Sector Lending (PSL) target of 75 percent of its Adjusted Net Bank Credit (ANBC).✓
- 4It will be allowed to stop lending to the micro-finance sector and focus purely on corporate clients.
Correct answer
It must immediately achieve a Priority Sector Lending (PSL) target of 75 percent of its Adjusted Net Bank Credit (ANBC).
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