Small Finance Banks (SFBs)

40) What is the purpose of setting up of Small Finance Banks (SFBs) in India?

1. To supply credit to small business units
2. To supply credit to small and marginal farmers
3. To encourage young entrepreneurs to set up business particularly in rural areas.

Select the correct answer using the code given below:

(a) 1 and 2 only

(b) 2 and 3 only

(c) 1 and 3 only

(d) 1, 2 and 3

Solution: (a) 1 and 2 only

RBI

• UNIVERSAL Bank Licence
• DIFFERENTIATED (NICHE) Bank Licence-serve certain demographic segment. 
• Small Finance Banks and Payment Banks
• The objectives of setting up of small finance banks will be to further financial inclusion by (1) the provision of savings vehicles (2) supply of credit to small business units; small and marginal farmers; micro and small industries; and other unorganised sector entities, through high technology-low cost operations.
• SFBs was recommended by the NachiketMor committee on financial inclusion.

As per RBI Guidelines, “The objectives of setting up of small finance banks will be to further financial inclusion by (a) provision of savings vehicles, and (ii) supply of credit to small business units; small and marginal farmers; micro and small industries; and other unorganised sector entities, through high technology-low cost operations.” It will thus support unserved and underserved sections.

However, apart from the provision of credit, there is no explicit provision that SFBs have been setup to encourage setting of businesses in rural areas. Statement 3 will be considered wrong.