{"id":35402,"date":"2024-03-22T05:30:55","date_gmt":"2024-03-22T05:30:55","guid":{"rendered":"https:\/\/edukemy.com\/blog\/?p=35402"},"modified":"2024-03-22T05:30:56","modified_gmt":"2024-03-22T05:30:56","slug":"small-finance-banks-sfbs-upsc-economy-notes","status":"publish","type":"post","link":"https:\/\/edukemy.com\/blog\/small-finance-banks-sfbs-upsc-economy-notes\/","title":{"rendered":"Small Finance Banks (SFBs) &#8211; UPSC Economy Notes"},"content":{"rendered":"\n<figure class=\"wp-block-image size-full\"><a href=\"https:\/\/edukemy.com\/upsc\/upsc-economy?utm_source=Blog&amp;utm_medium=Banner&amp;utm_campaign=Blog+Economy\" target=\"_blank\" rel=\"noreferrer noopener\"><img fetchpriority=\"high\" decoding=\"async\" width=\"1280\" height=\"300\" src=\"https:\/\/edukemy.com\/blog\/wp-content\/uploads\/2024\/06\/17.png\" alt=\"\" class=\"wp-image-42386\" srcset=\"https:\/\/edukemy.com\/blog\/wp-content\/uploads\/2024\/06\/17.png 1280w, https:\/\/edukemy.com\/blog\/wp-content\/uploads\/2024\/06\/17-1170x274.png 1170w, https:\/\/edukemy.com\/blog\/wp-content\/uploads\/2024\/06\/17-585x137.png 585w\" sizes=\"(max-width: 1280px) 100vw, 1280px\" \/><\/a><\/figure>\n\n\n\n<p><strong>Overview:<\/strong> Small Finance Banks (SFBs) are a category of scheduled commercial banks designed to focus on financial inclusion and provide banking services to specific segments. Here are key aspects of Small Finance Banks in India:<\/p>\n\n\n\n<ol class=\"wp-block-list\"><li><strong>Objective and Focus:<\/strong><ul><li><strong>Financial Inclusion:<\/strong> SFBs aim to promote financial inclusion by catering to the needs of small business units, small and marginal farmers, micro and small industries, and entities in the unorganized sector.<\/li><li><strong>Not Exclusive:<\/strong> While their primary focus is on financial inclusion, SFBs are not exclusively restricted to these sectors.<\/li><\/ul><\/li><li><strong>Promoters and Structure:<\/strong><ul><li><strong>Promoters:<\/strong> SFBs can be promoted by individuals, corporates, trusts, or societies.<\/li><li><strong>Legal Structure:<\/strong> They are established as public limited companies in the private sector, licensed under the Banking Regulation Act, 1949, and governed by RBI Act, 1934.<\/li><\/ul><\/li><li><strong>Area of Operations:<\/strong><ul><li><strong>No Restriction:<\/strong> SFBs can operate without restrictions in terms of the area, unlike regional rural banks (RRBs) or local area banks.<\/li><li><strong>Minimum Capital Requirement:<\/strong> A minimum capital of 100 crores is prescribed for SFBs.<\/li><\/ul><\/li><li><strong>Regulatory Framework:<\/strong><ul><li><strong>Compliance:<\/strong> SFBs are subject to all prudential norms and regulations of RBI applicable to existing commercial banks, including maintenance of Cash Reserve Ratio (CRR) and Statutory Liquidity Ratio (SLR).<\/li><li><strong>Priority Sector Lending (PSL):<\/strong> SFBs are required to extend 75% of credit to sectors eligible for classification as priority sector lending by the Reserve Bank.<\/li><\/ul><\/li><li><strong>Branches and Rural Presence:<\/strong><ul><li><strong>Branches:<\/strong> At least 25% of the branches of SFBs should be in unbanked rural centers.<\/li><li><strong>Loan Portfolio:<\/strong> A minimum of 50% of the loan portfolio should constitute loans and advances of up to 25 lakhs.<\/li><\/ul><\/li><li><strong>Non-Risk Sharing Financial Services:<\/strong><ul><li><strong>Allowed Activities:<\/strong> SFBs can undertake non-risk sharing financial services activities that do not require a commitment of their funds. These include the distribution of mutual fund units, insurance products, pension products, etc.<\/li><li><strong>Foreign Exchange Business:<\/strong> SFBs can set up dealerships in foreign exchange business.<\/li><\/ul><\/li><li><strong>Conversion and Licensing:<\/strong><ul><li><strong>Conversion:<\/strong> Existing NBFCs, microfinance institutions, and local area banks can opt for conversion into Small Finance Banks.<\/li><li><strong>On-Tap Licensing:<\/strong> RBI introduced an &#8216;on-tap&#8217; licensing process in 2019, allowing it to accept applications and grant licenses for SFBs throughout the year.<\/li><\/ul><\/li><li><strong>Background:<\/strong><ul><li><strong>Recommendation:<\/strong> The concept of Small Finance Banks was recommended in the 2009 report titled &#8216;A Hundred Small Steps&#8217; of the Committee on Financial Sector Reforms headed by Dr. Raghuram Rajan.<\/li><li><strong>Operations:<\/strong> Many SFBs started operations based on these recommendations.<\/li><\/ul><\/li><\/ol>\n\n\n\n<p><strong>Conclusion:<\/strong> Small Finance Banks play a crucial role in addressing the financial needs of specific segments, contributing to financial inclusion and promoting economic development. The regulatory framework ensures compliance with prudential norms while allowing flexibility in serving diverse customer segments.<\/p>\n\n\n\n<div id=\"ez-toc-container\" class=\"ez-toc-v2_0_73 counter-hierarchy ez-toc-counter ez-toc-grey ez-toc-container-direction\">\n<label for=\"ez-toc-cssicon-toggle-item-69d2f412e297c\" class=\"ez-toc-cssicon-toggle-label\"><p class=\"ez-toc-title\" style=\"cursor:inherit\">Table of Contents<\/p>\n<span class=\"ez-toc-cssicon\"><span class=\"eztoc-hide\" style=\"display:none;\">Toggle<\/span><span class=\"ez-toc-icon-toggle-span\"><svg style=\"fill: #999;color:#999\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" class=\"list-377408\" width=\"20px\" height=\"20px\" viewBox=\"0 0 24 24\" fill=\"none\"><path d=\"M6 6H4v2h2V6zm14 0H8v2h12V6zM4 11h2v2H4v-2zm16 0H8v2h12v-2zM4 16h2v2H4v-2zm16 0H8v2h12v-2z\" fill=\"currentColor\"><\/path><\/svg><svg style=\"fill: #999;color:#999\" class=\"arrow-unsorted-368013\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" width=\"10px\" height=\"10px\" viewBox=\"0 0 24 24\" version=\"1.2\" baseProfile=\"tiny\"><path d=\"M18.2 9.3l-6.2-6.3-6.2 6.3c-.2.2-.3.4-.3.7s.1.5.3.7c.2.2.4.3.7.3h11c.3 0 .5-.1.7-.3.2-.2.3-.5.3-.7s-.1-.5-.3-.7zM5.8 14.7l6.2 6.3 6.2-6.3c.2-.2.3-.5.3-.7s-.1-.5-.3-.7c-.2-.2-.4-.3-.7-.3h-11c-.3 0-.5.1-.7.3-.2.2-.3.5-.3.7s.1.5.3.7z\"\/><\/svg><\/span><\/span><\/label><input type=\"checkbox\"  id=\"ez-toc-cssicon-toggle-item-69d2f412e297c\"  \/><nav><ul class='ez-toc-list ez-toc-list-level-1 ' ><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-1\" href=\"https:\/\/edukemy.com\/blog\/small-finance-banks-sfbs-upsc-economy-notes\/#FAQs\" title=\"FAQs\">FAQs<\/a><ul class='ez-toc-list-level-3' ><li class='ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-2\" href=\"https:\/\/edukemy.com\/blog\/small-finance-banks-sfbs-upsc-economy-notes\/#1_What_are_Small_Finance_Banks_SFBs\" title=\"1. What are Small Finance Banks (SFBs)?\">1. What are Small Finance Banks (SFBs)?<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-3\" href=\"https:\/\/edukemy.com\/blog\/small-finance-banks-sfbs-upsc-economy-notes\/#2_What_is_the_purpose_of_establishing_Small_Finance_Banks\" title=\"2. What is the purpose of establishing Small Finance Banks?\">2. What is the purpose of establishing Small Finance Banks?<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-4\" href=\"https:\/\/edukemy.com\/blog\/small-finance-banks-sfbs-upsc-economy-notes\/#3_How_do_Small_Finance_Banks_differ_from_other_types_of_banks\" title=\"3. How do Small Finance Banks differ from other types of banks?\">3. How do Small Finance Banks differ from other types of banks?<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-5\" href=\"https:\/\/edukemy.com\/blog\/small-finance-banks-sfbs-upsc-economy-notes\/#4_What_services_do_Small_Finance_Banks_offer\" title=\"4. What services do Small Finance Banks offer?\">4. What services do Small Finance Banks offer?<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-6\" href=\"https:\/\/edukemy.com\/blog\/small-finance-banks-sfbs-upsc-economy-notes\/#5_How_are_Small_Finance_Banks_regulated\" title=\"5. How are Small Finance Banks regulated?\">5. How are Small Finance Banks regulated?<\/a><\/li><\/ul><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-7\" href=\"https:\/\/edukemy.com\/blog\/small-finance-banks-sfbs-upsc-economy-notes\/#In_case_you_still_have_your_doubts_contact_us_on_9811333901\" title=\"In case you still have your doubts, contact us on 9811333901.&nbsp;\">In case you still have your doubts, contact us on 9811333901.&nbsp;<\/a><ul class='ez-toc-list-level-4' ><li class='ez-toc-heading-level-4'><ul class='ez-toc-list-level-4' ><li class='ez-toc-heading-level-4'><a class=\"ez-toc-link ez-toc-heading-8\" href=\"https:\/\/edukemy.com\/blog\/small-finance-banks-sfbs-upsc-economy-notes\/#Visit_our_YouTube_Channel_%E2%80%93_here\" title=\"Visit our YouTube Channel &#8211;&nbsp;here\">Visit our YouTube Channel &#8211;&nbsp;here<\/a><\/li><\/ul><\/li><\/ul><\/li><\/ul><\/nav><\/div>\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"FAQs\"><\/span>FAQs<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<h3 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"1_What_are_Small_Finance_Banks_SFBs\"><\/span><strong>1. What are Small Finance Banks (SFBs)?<\/strong> <span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<p>A: Small Finance Banks (SFBs) are specialized banks in India that primarily cater to the financial needs of underserved and unserved sections of the population, including small business units, micro and small industries, and unorganized sector entities. They aim to provide basic banking services like deposits and lending to these segments, which are often neglected by traditional banks.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"2_What_is_the_purpose_of_establishing_Small_Finance_Banks\"><\/span><strong>2. What is the purpose of establishing Small Finance Banks?<\/strong> <span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<p>A: The main objective behind establishing Small Finance Banks is to promote financial inclusion by extending banking services to the unbanked and underbanked sections of society. These banks facilitate access to credit and other financial products for individuals and businesses in rural and remote areas, helping them participate in the formal financial system.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"3_How_do_Small_Finance_Banks_differ_from_other_types_of_banks\"><\/span><strong>3. How do Small Finance Banks differ from other types of banks?<\/strong> <span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<p>A: Small Finance Banks differ from traditional banks and other specialized banks in their focus on serving the needs of marginalized and financially excluded segments. They operate under stricter regulations that mandate a certain percentage of their lending to priority sectors like agriculture, small businesses, and microfinance. Additionally, they have smaller geographical areas of operation compared to larger banks.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"4_What_services_do_Small_Finance_Banks_offer\"><\/span><strong>4. What services do Small Finance Banks offer?<\/strong> <span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<p>A: Small Finance Banks offer a range of banking services including savings accounts, current accounts, fixed deposits, recurring deposits, remittance services, and loans such as small business loans, agricultural loans, microloans, and personal loans. They leverage technology and innovative delivery channels to reach customers in remote areas efficiently.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"5_How_are_Small_Finance_Banks_regulated\"><\/span><strong>5. How are Small Finance Banks regulated?<\/strong> <span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<p>A: Small Finance Banks are regulated by the Reserve Bank of India (RBI) under the provisions of the Banking Regulation Act, 1949. They are subject to similar regulatory frameworks as commercial banks but with certain relaxations and concessions aimed at promoting financial inclusion. The RBI monitors their operations closely to ensure compliance with regulations and adherence to the priority sector lending targets.<\/p>\n\n\n\n<figure class=\"wp-block-image size-full is-resized\"><a href=\"https:\/\/edukemy.com\/upsc\/upsc-essay?utm_source=Blog&amp;utm_medium=Banner&amp;utm_campaign=Essay\" target=\"_blank\" rel=\"noreferrer noopener\"><img decoding=\"async\" data-src=\"https:\/\/edukemy.com\/blog\/wp-content\/uploads\/2024\/06\/UPSC-Essay-Course-1280\u00d7300-1-3.svg\" alt=\"\" class=\"wp-image-42688 lazyload\" width=\"781\" height=\"182\" src=\"data:image\/gif;base64,R0lGODlhAQABAAAAACH5BAEKAAEALAAAAAABAAEAAAICTAEAOw==\" style=\"--smush-placeholder-width: 781px; --smush-placeholder-aspect-ratio: 781\/182;\" \/><\/a><\/figure>\n\n\n\n<h2 class=\"wp-block-heading\" id=\"block-a89a3d67-2417-45cd-a2fb-0111b244b0c1\"><span class=\"ez-toc-section\" id=\"In_case_you_still_have_your_doubts_contact_us_on_9811333901\"><\/span><strong>In case you still have your doubts, contact us on 9811333901.<\/strong>&nbsp;<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p id=\"block-69a62278-baf6-4ddd-a549-0ddd2778f323\">For UPSC Prelims Resources,&nbsp;<a href=\"https:\/\/edukemy.com\/upsc-cse-prelims-resource-centre\" target=\"_blank\" rel=\"noreferrer noopener\">Click here<\/a><\/p>\n\n\n\n<p id=\"block-c56c7fb3-ec87-4e90-b054-6f51ec4c67f5\">For Daily Updates and Study Material:<\/p>\n\n\n\n<p id=\"block-b119f379-961e-41a3-8289-c115ec5ee6e2\">Join our Telegram Channel &#8211;&nbsp;<a href=\"https:\/\/t.me\/WithEdukemy4IAS\" target=\"_blank\" rel=\"noreferrer noopener\">Edukemy for IAS<\/a><\/p>\n\n\n\n<ul class=\"wp-block-list\" id=\"block-b3874375-be5a-4d16-856f-48851f19bc36\"><li>1. Learn through Videos &#8211;&nbsp;<a href=\"https:\/\/bit.ly\/3vOD8sU\" target=\"_blank\" rel=\"noreferrer noopener\">here<\/a><\/li><li>2. Be Exam Ready by Practicing Daily MCQs &#8211;&nbsp;<a href=\"https:\/\/bit.ly\/3Q9z2nF\" target=\"_blank\" rel=\"noreferrer noopener\">here<\/a><\/li><li>3. Daily Newsletter &#8211; Get all your Current Affairs Covered &#8211;&nbsp;<a href=\"https:\/\/bit.ly\/3bE2y5J\" target=\"_blank\" rel=\"noreferrer noopener\">here<\/a><\/li><li>4. Mains Answer Writing Practice &#8211;&nbsp;<a href=\"https:\/\/bit.ly\/3mZuVxl\" target=\"_blank\" rel=\"noreferrer noopener\">here<\/a><\/li><\/ul>\n\n\n\n<h4 class=\"wp-block-heading\" id=\"block-fecb2f6f-20a7-4f52-8c9d-10509a066c20\"><span class=\"ez-toc-section\" id=\"Visit_our_YouTube_Channel_%E2%80%93_here\"><\/span>Visit our YouTube Channel &#8211;&nbsp;<a href=\"https:\/\/www.youtube.com\/@EduKemyforIAS\" target=\"_blank\" rel=\"noreferrer noopener\">here<\/a><span class=\"ez-toc-section-end\"><\/span><\/h4>\n","protected":false},"excerpt":{"rendered":"<p>Small Finance Banks (SFBs) are a category of scheduled commercial banks designed to focus on financial inclusion and provide banking services to specific segments.<\/p>\n","protected":false},"author":17,"featured_media":35406,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_eb_attr":"","om_disable_all_campaigns":false,"_monsterinsights_skip_tracking":false,"_monsterinsights_sitenote_active":false,"_monsterinsights_sitenote_note":"","_monsterinsights_sitenote_category":0,"_uf_show_specific_survey":0,"_uf_disable_surveys":false,"_lmt_disableupdate":"","_lmt_disable":"","footnotes":""},"categories":[209],"tags":[235,2784,232,213,140],"class_list":["post-35402","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-economy-notes","tag-economy-notes","tag-small-finance-banks","tag-upsc","tag-upsc-notes","tag-upsc_preparation_strategy"],"aioseo_notices":[],"_links":{"self":[{"href":"https:\/\/edukemy.com\/blog\/wp-json\/wp\/v2\/posts\/35402","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/edukemy.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/edukemy.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/edukemy.com\/blog\/wp-json\/wp\/v2\/users\/17"}],"replies":[{"embeddable":true,"href":"https:\/\/edukemy.com\/blog\/wp-json\/wp\/v2\/comments?post=35402"}],"version-history":[{"count":1,"href":"https:\/\/edukemy.com\/blog\/wp-json\/wp\/v2\/posts\/35402\/revisions"}],"predecessor-version":[{"id":35407,"href":"https:\/\/edukemy.com\/blog\/wp-json\/wp\/v2\/posts\/35402\/revisions\/35407"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/edukemy.com\/blog\/wp-json\/wp\/v2\/media\/35406"}],"wp:attachment":[{"href":"https:\/\/edukemy.com\/blog\/wp-json\/wp\/v2\/media?parent=35402"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/edukemy.com\/blog\/wp-json\/wp\/v2\/categories?post=35402"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/edukemy.com\/blog\/wp-json\/wp\/v2\/tags?post=35402"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}