“In 2013, Dr. Nachiket Mor committee recommended differential licensing in the form of two categories: i) Payments Bank, and ii) Small Finance Bank (SFB) to further financial inclusion in India. There are various perceived challenges when MFI have to transform from their existing credit led structure to full service small finance bank. Challenges are largely perceived in capital restructuring following RBI guideline to reduce the bank loan exposure to three – four times of their net owned fund and replace it with deposits mobilised from the customer. Challenges become momentous considering arrival of payment bank tapping the same market segment.
In this Note, we discuss various challenges that MFIs may face while transforming to small finance bank and plausible solution in the subsequent note.”