According to Reserve Bank of India licensing guidelines, what is the minimum paid-up equity capital required to set up a small finance bank in India?

Introduction / Context:
Small finance banks are a category of niche banks introduced by the Reserve Bank of India to further financial inclusion by providing basic banking services to small business units, small and marginal farmers, micro and small industries and unorganised sector entities. For licensing such banks, RBI has laid down specific conditions, including a minimum paid-up equity capital requirement.

Given Data / Assumptions:

• The question is about small finance banks, not payments banks or universal commercial banks.
• We are asked for the minimum paid-up equity capital needed at the time of setting up such a bank.
• The options include Rs 10 crore, Rs 500 crore, Rs 100 crore and Rs 200 crore.
• We assume the standard guideline figure used for static banking awareness.

Concept / Approach:
The licensing guidelines for small finance banks specify that the minimum paid-up equity capital shall be Rs 100 crore. This ensures that the bank has a reasonable financial base without creating too high a barrier for smaller entities such as micro finance institutions that may wish to convert into small finance banks. Larger figures like Rs 500 crore are associated more with universal banks, while much smaller figures would be considered inadequate for a regulated bank.

Step-by-Step Solution:
Step 1: Recall RBI's guidelines for small finance banks, which include promoter eligibility, business focus and capital requirements.Step 2: Focus on the clause concerning minimum paid-up equity capital.Step 3: Remember that the guidelines prescribe a minimum capital of Rs 100 crore.Step 4: Compare this figure with the options provided.Step 5: Select Rs 100 crore as the correct answer.

Verification / Alternative check:
RBI's official notifications and exam preparatory materials on small finance banks unequivocally state that the minimum paid-up equity capital requirement is Rs 100 crore. Multiple banking awareness books repeat this figure as a key fact to remember. There is no conflicting official figure for small finance banks, which confirms that Rs 100 crore is correct.

Why Other Options Are Wrong:

• Rs 10 crore: This is far too low for a scheduled commercial bank and does not match any RBI guideline for small finance banks.
• Rs 500 crore: Such a high threshold would resemble that for larger universal banks and would not align with the inclusion objective of small finance banks.
• Rs 200 crore: This amount is not the standard number used in RBI's small finance bank licensing guidelines.

Common Pitfalls:
A frequent confusion is between requirements for different bank types: payments banks, small finance banks and regular commercial banks. Another issue is mixing up net worth requirements with paid-up capital figures. To avoid errors, remember the trio: small finance banks need at least Rs 100 crore paid-up equity capital, payments banks originally required Rs 100 crore as well, but their operational rules about deposits and activities differ significantly.

Final Answer:
The minimum paid-up equity capital required to start a small finance bank in India is Rs 100 crore.