Payment Banks & Small Finance Banks: Complete Guide for Bank Promotion Exams 2026
⚡ Quick Facts — Payment Banks & Small Finance Banks
| Guidelines issued (both) | November 27, 2014 — same date for Payment Banks and SFBs |
| Payment Bank deposit cap | ₹2 lakh per customer (end of day) — raised from ₹1 lakh in April 2021 |
| Payment Bank: can it lend? | No — cannot lend to public; only to own employees |
| Payment Bank: govt securities | Minimum 75% of demand deposits in SLR-eligible govt securities |
| Payment Bank min capital | ₹100 crore paid-up equity |
| SFB PSL requirement | 75% of ANBC until FY25-26; 60% from April 1, 2026 |
| SFB: 50% small loans rule | 50% of loan portfolio must be loans up to ₹25 lakh |
| SFB min capital | ₹300 crore (per 2025 guidelines) |
| CRAR — both PBs and SFBs | 15% minimum (vs 9% for universal SCBs) |
| SFB → Universal Bank (first) | AU Small Finance Bank — in-principle approval August 7, 2025 |
| Active Payment Banks (2026) | 5 (Airtel, IPPB, Fino, Jio, NSDL) — Paytm PB licence cancelled April 2026 |
| Active SFBs | 11 (as of May 2026) |
Payment Banks and Small Finance Banks are differentiated banking licences introduced by RBI in 2014 to deepen financial inclusion. Though launched the same year, they serve very different purposes — Payment Banks handle remittances and basic deposits without lending; Small Finance Banks are full-service banks focused on small borrowers. Both appear in every bank promotion exam, with 4–6 questions on their features, differences, and recent regulatory developments.
Why Were They Created? — The Financial Inclusion Context
The Nachiket Mor Committee on Financial Services for Small Businesses and Low Income Households (2014) recommended specialised banking structures to bring the unbanked into the formal financial system. RBI issued guidelines for both categories on the same date — November 27, 2014 — reflecting a coordinated policy push. Payment Banks would handle basic payments and deposits for migrant workers and low-income households; SFBs would provide credit and savings services to small farmers, micro-enterprises, and the unorganised sector.
Part I — Payment Banks
What a Payment Bank Can and Cannot Do
| Permissible ✓ | Prohibited ✗ |
|---|---|
| Accept demand deposits (savings and current accounts) | Lend to individuals or entities — no loans, no overdrafts |
| Issue ATM / debit cards | Issue credit cards |
| Internet banking, mobile banking, remittances | Accept time deposits (FDs, RDs) |
| Distribute third-party products: mutual funds, insurance, pension | Set up subsidiaries |
| Foreign exchange — Authorised Dealer Category II | Undertake para-banking not specified in guidelines |
| Act as Business Correspondent for other banks | Participate in “when issued” / short-sale in Govt securities |
| Invest in Govt securities / T-Bills | Lend to any customer — exception: own employees only |
Key Regulatory Parameters — Payment Banks
| Parameter | Requirement | Exam Note |
|---|---|---|
| Deposit cap per customer | ₹2 lakh at end of day | Raised from ₹1 lakh via RBI circular April 8, 2021 — most MCQs still cite ₹1 lakh (wrong) |
| Govt securities investment | Min 75% of demand deposit balances in SLR-eligible Govt securities / T-Bills (maturity ≤ 1 year) | Max 25% can be kept as deposits with SCBs |
| Minimum paid-up capital | ₹100 crore | Must be maintained as net worth at all times |
| CRAR minimum | 15% | Same as SFBs; much higher than 9% for universal SCBs |
| CET1 minimum | 7% (from April 1, 2019) | Tier 1 minimum 7.5% |
| CRR / SLR | Same as applicable to scheduled commercial banks | The 75% Govt securities rule is additional and separate from SLR |
| Promoter min shareholding | 40% at commencement, locked in for 5 years | Must reduce to 40% by year 3, 30% by year 10, 26% by year 12 |
| Foreign ownership | Up to 74% (FDI policy for private banks) | Same as private sector banks |
| Priority sector lending | As per SCB norms (40% of ANBC) | Same obligation as universal commercial banks |
| On-tap licensing | Not available | Unlike SFBs, no on-tap window for new Payment Bank licences |
Active Payment Banks — May 2026
| Payment Bank | Status | Notable Fact |
|---|---|---|
| Airtel Payments Bank | Active | Largest by customer base; promoted by Bharti Airtel |
| India Post Payments Bank (IPPB) | Active | Government-owned; widest rural reach via India Post network |
| Fino Payments Bank | Active | Listed on BSE/NSE — only listed Payment Bank |
| Jio Payments Bank | Active | Promoted by Reliance Industries |
| NSDL Payments Bank | Active | Promoted by National Securities Depository Ltd |
| Paytm Payments Bank | ⛔ Licence cancelled April 24, 2026 | RBI cited KYC violations, regulatory non-compliance, transactions with parent entity (One97 Communications) |
Original in-principle approvals (August 2015): 11 entities received approval. Apart from the 6 above, five surrendered their approvals before commencing operations: Aditya Birla Idea Payments Bank (launched but closed July 2019 after 17 months), Cholamandalam Distribution Services, Tech Mahindra, Dilip Shanghvi, and Telenor Financial Services.
⚠ Paytm Payments Bank — Exam-Critical Sequence
- March 2022: RBI barred Paytm Payments Bank from onboarding new customers (compliance concerns)
- January 31, 2024: RBI directed it to stop accepting fresh deposits/top-ups after February 29, 2024 — citing KYC violations (single PAN linked to thousands of accounts) and undisclosed related-party transactions
- April 24, 2026: Licence formally cancelled under Section 22(4) of the Banking Regulation Act, 1949
- Paytm UPI continues as a third-party UPI app (TPAP) through Yes Bank — the app is not dead, only the banking licence is cancelled
Part II — Small Finance Banks (SFBs)
What an SFB Can and Cannot Do
Unlike Payment Banks, SFBs are full-service commercial banks — they can lend, accept all deposit types, and issue credit cards. Their key constraint is the focus on small borrowers.
| Permissible ✓ | Restricted / Prohibited ✗ |
|---|---|
| Accept all deposits — savings, current, FD, RD | Cannot act as Business Correspondent of another bank |
| Lend to all segments — individuals, MSMEs, agriculture | Cannot set up subsidiaries initially |
| Issue debit and credit cards | Cannot create floating charges on assets |
| Forex — AD Category II (eligible for Cat I after 2 years) | Cannot lend to promoters or shareholders holding ≥10% |
| Distribute mutual funds, insurance, pension (after 3 years) | 50% of loan portfolio must be ≤ ₹25 lakh at all times |
| Open banking outlets freely (general permission) | PSL target: 60% of ANBC (from April 1, 2026) |
Key Regulatory Parameters — Small Finance Banks
| Parameter | Requirement | Exam Note |
|---|---|---|
| PSL target | 75% of ANBC (until FY2025-26); 60% from April 1, 2026 | Revised by RBI PSL Amendment Directions January 19, 2026 |
| 50% small loans rule | Min 50% of loan portfolio in loans up to ₹25 lakh | Ensures focus on small borrowers — unique to SFBs |
| Minimum paid-up capital | ₹300 crore (2025 guidelines) | Raised from ₹200 crore (2024) and ₹100 crore (original 2014) |
| CRAR minimum | 15% | Higher than 9% for universal banks — same as Payment Banks |
| Tier 1 CRAR minimum | 7.5% | Same requirement as Payment Banks |
| Promoter min shareholding | 40% at commencement, locked in 5 years | Must reduce to 26% within 15 years |
| Mandatory listing | Within 8 years of commencement | Prerequisite for universal bank conversion also |
| On-tap licensing | Available — since December 5, 2019 | Any eligible entity can apply — unlike Payment Banks |
| UCB → SFB conversion | Eligible — minimum capital ₹150 crore initially, must reach ₹300 crore within 5 years | Shivalik Mercantile Co-op Bank was first UCB to convert (2021) |
| Payment Bank → SFB | Eligible after 5 years of satisfactory operation | Introduced via January 2024 revised guidelines |
Priority Sector Lending — The 2026 Change
This is the most important recent regulatory change for SFBs and is certain to appear in exams:
| Bank Type | PSL Target | Effective |
|---|---|---|
| SFBs (until FY2025-26) | 75% of ANBC | Since commencement |
| SFBs (from FY2026-27) | 60% of ANBC | April 1, 2026 (RBI PSL Amendment Directions January 19, 2026) |
| Universal / Scheduled Commercial Banks | 40% of ANBC | Ongoing |
| Foreign banks (≥20 branches) | 40% of ANBC | Ongoing |
Operational SFBs — May 2026
| SFB | Origin | Notable |
|---|---|---|
| AU Small Finance Bank | AU Financiers (vehicle/SME NBFC) | First SFB to receive in-principle approval for universal bank — August 7, 2025 |
| Equitas SFB | Equitas Micro Finance (MFI) | Listed; MFI origins |
| Ujjivan SFB | Ujjivan Financial Services (MFI) | Universal bank application returned by RBI — April 2026 |
| ESAF SFB | ESAF Microfinance (MFI) | Kerala-based; strong in South India |
| Suryoday SFB | Suryoday Micro Finance (MFI) | Listed |
| Utkarsh SFB | Utkarsh Micro Finance (MFI) | UP/Bihar focused |
| Jana SFB | Janalakshmi Financial Services (MFI) | Universal bank application returned by RBI — October 2025 |
| Capital SFB | Capital Local Area Bank | Non-MFI origin; Punjab-based |
| Shivalik SFB | Shivalik Mercantile Co-operative Bank | First UCB to convert to SFB (2021) |
| Unity SFB | Punjab & Maharashtra Co-operative Bank restructuring | Created 2021 as part of PMC Bank resolution |
| Slice SFB | Slice (fintech) merger with North East SFB (Oct 2024) | Renamed Slice SFB in May 2025 |
Note: Of the 10 original SFBs licensed in September 2015, 8 were MFIs/NBFC-MFIs. Only AU (NBFC) and Capital (Local Area Bank) had non-MFI origins. Bandhan Bank, though a large MFI, received a universal bank licence directly in 2015 — it was never an SFB.
SFB → Universal Bank Transition Framework
RBI issued the Guidelines on Voluntary Transition of SFBs to Universal Banks on April 26, 2024. Key eligibility criteria:
- Minimum 5 years of satisfactory operation as an SFB
- Listed on stock exchanges
- Minimum net worth of ₹1,000 crore
- Profitable for at least 2 consecutive financial years
- Gross NPA below 3% and Net NPA below 1% for 2 consecutive years
- Diversified loan portfolio (not overly concentrated in one segment)
| SFB | Application Outcome |
|---|---|
| AU Small Finance Bank | ✅ In-principle approval — August 7, 2025 (first ever) |
| Jana SFB | ❌ Application returned — October 2025 (loan portfolio diversification concerns) |
| Ujjivan SFB | ❌ Application returned — April 2026 (criteria not met) |
Payment Banks vs SFBs vs Universal Banks — Master Comparison
| Feature | Payment Banks | Small Finance Banks | Universal SCBs |
|---|---|---|---|
| Can lend to public | ❌ No | ✅ Yes | ✅ Yes |
| Can accept FDs | ❌ No | ✅ Yes | ✅ Yes |
| Can issue credit cards | ❌ No | ✅ Yes | ✅ Yes |
| Deposit cap per customer | ₹2 lakh | No cap | No cap |
| Minimum capital | ₹100 crore | ₹300 crore | ₹500 crore (new universal) |
| CRAR minimum | 15% | 15% | 9% |
| PSL target | 40% of ANBC | 60% of ANBC (from Apr 2026) | 40% of ANBC |
| 75% in Govt securities | ✅ Yes (demand deposits) | ❌ No | ❌ No |
| 50% loans ≤ ₹25 lakh | ❌ N/A (no lending) | ✅ Yes | ❌ No |
| Can set up subsidiaries | ❌ No | Restricted | ✅ Yes |
| Forex | AD Category II | AD Cat II (Cat I after 2 yr) | AD Category I |
| On-tap licensing | ❌ No | ✅ Yes (since 2019) | ✅ Yes (since 2016) |
| Promoter lock-in | 40% for 5 years | 40% for 5 years | As per RBI norms |
| Upgrade path | → SFB (after 5 years) | → Universal bank (after 5 years) | Terminal category |
Licensing Timeline — Key Dates for Exams
| Date | Event |
|---|---|
| November 27, 2014 | RBI issues guidelines for both Payment Banks and SFBs — same date |
| August 19, 2015 | In-principle approvals to 11 Payment Banks |
| September 16, 2015 | In-principle approvals to 10 SFBs |
| January 2017 | Airtel Payments Bank — India’s first Payment Bank to commence operations |
| April 8, 2021 | Payment Bank deposit limit raised from ₹1 lakh to ₹2 lakh |
| December 5, 2019 | RBI introduces on-tap licensing for SFBs |
| January 8, 2024 | SFB min capital raised to ₹200 crore; Payment Banks can convert to SFB after 5 years |
| April 26, 2024 | RBI framework for voluntary SFB → Universal Bank transition |
| January 19, 2026 | PSL Amendment Directions — SFB PSL reduced to 60% from April 1, 2026 |
| August 7, 2025 | AU SFB receives first-ever in-principle approval to become universal bank |
| April 24, 2026 | Paytm Payments Bank licence cancelled under Section 22(4) BR Act, 1949 |
⚠ Top 10 Exam Traps — Payment Banks & SFBs
- Payment Bank deposit limit = ₹2 lakh (not ₹1 lakh — changed April 2021; most old MCQs show ₹1 lakh).
- Payment Banks cannot lend to customers — they can lend ONLY to own employees.
- SFB PSL = 60% from April 1, 2026 (not 75% — most current study material may still say 75%).
- Bandhan Bank was NEVER an SFB — it went directly from MFI to universal bank licence (2015).
- Both PB and SFB CRAR = 15% (not 9% — which is for universal SCBs).
- AU SFB has in-principle approval only — it has NOT yet converted to a universal bank.
- Not all original 10 SFBs were MFIs — AU (NBFC) and Capital (Local Area Bank) were not.
- Payment Banks invest 75% of demand deposits in Govt securities — this is SEPARATE from the statutory SLR; CRR/SLR requirements are the same as commercial banks.
- SFB minimum capital is ₹300 crore (2025 guidelines) — not ₹200 crore or ₹100 crore.
- Both SFB and Payment Bank guidelines issued November 27, 2014 — same date is a frequent MCQ.
One-Liners for Quick Revision
- Both Payment Bank and SFB guidelines issued on November 27, 2014 — same date.
- Payment Bank deposit cap = ₹2 lakh per customer (raised from ₹1 lakh in April 2021).
- Payment Banks cannot lend to customers — only to own employees.
- Payment Banks must invest min 75% of demand deposits in Govt securities / T-Bills (maturity ≤ 1 year).
- Payment Banks: debit cards ✅ | credit cards ❌ | FDs ❌ | loans ❌.
- CRAR for both Payment Banks and SFBs = 15% (vs 9% for universal banks).
- SFBs: PSL = 75% of ANBC until FY25-26; 60% from April 1, 2026 (universal banks = 40%).
- SFBs: min 50% of loan portfolio must be loans up to ₹25 lakh.
- SFB minimum capital = ₹300 crore (2025 guidelines).
- AU SFB = first to get in-principle approval for universal bank — August 7, 2025.
- Paytm Payments Bank licence cancelled — April 24, 2026 (Section 22(4) BR Act).
- Active Payment Banks = 5 (Airtel, IPPB, Fino, Jio, NSDL) as of May 2026.
- Active SFBs = 11 as of May 2026.
- Payment Bank → SFB conversion: eligible after 5 years of satisfactory operation (from January 2024).
- SFB → Universal Bank: min 5 years operation, net worth ₹1,000 crore, GNPA <3%, NNPA <1%, listed.
- 8 of the original 10 SFBs were MFIs; AU (NBFC) and Capital (Local Area Bank) were not.
- Bandhan Bank went directly from MFI to universal bank — never operated as an SFB.
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The information on this page is based on RBI guidelines, circulars, and publicly available information as of the date of last update. Banking regulations are subject to change through RBI notifications, government circulars, and amendments. The figures provided (deposit limits, PSL targets, minimum capital requirements, CRAR norms, list of active banks) reflect the position as understood at the time of writing and may not capture subsequent regulatory changes.
Always refer to the latest RBI Master Circulars, official notifications on rbi.org.in, and your bank’s official promotion circular for authoritative and current information applicable to your examination.
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