Small Finance banks can provide basic banking services like acceptance of deposits and credit but in a limited way. Small Finance Bank is primarily for small farmers, micro and small industries plus other unorganised sector in India. RBI granted in-principal approval to 10 applicants for setting up Small Finance Banks in India.
The major difference between Small Finance banks and Payment banks is that the SFBs can lend small loans but not larger loans. While Payment banks can’t extend any loans.
Small Finance banks primary objective is to promote financial inclusion in the country. The main objectives include:
- Offering Basic banking activities like accepting deposits.
- Lending low cost credit to small business units, unorganised sector, farmers and micro and small industries.
However, a Small Finance Bank cannot extend larger amount of loans. In fact, SFBs have to face challenges to compete with public sector banks. Overall, Small Finance banks are a good initiative to further strengthen the credit arena.