Small Finance Banks: The Backbone of India's MSMEs Revolution and Financial Empowerment

SFBs have emerged as a popular banking alternative in India, especially among underserved populations such as small businesses, micro-entrepreneurs, and low-income households. SFBs offer a wide variety of banking services, including savings and current accounts, fixed and recurring deposits, loans, and remittance services.

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By CA Gourav Soni, Chartered Accountant, Member of The Institute of Chartered Accountant of India

Introduction:

Small Finance Banks (SFBs) are a new entrant into the Indian banking system, with a unique emphasis on promoting financial inclusion. Small Finance Bank is a type of banking institution conceptualized and regulated by the RBI with aim to deliver essential banking services in areas lacking access to financial facilities. They have witnessed a rapid growth in their branch network and asset base while maintaining a healthy asset quality and generating high return on assets.

SFBs have emerged as a popular banking alternative in India, especially among underserved populations such as small businesses, micro-entrepreneurs, and low-income households. SFBs offer a wide variety of banking services, including savings and current accounts, fixed and recurring deposits, loans, and remittance services.

Evolution of Small Finance Banks in India:

The concept of Small Finance Banks (SFBs) was introduced in the 2014-15 Union Budget, while the RBI releasing comprehensive guidelines in November 2014 to facilitate the licensing of these banks, primarily aimed at promoting financial inclusion. Post receiving their licenses from the RBI, a total of 12 SFBs have commenced operations in India, while one amalgamated with another. The first two, Capital Small Finance Bank and Equitas Small Finance Bank, began operations in 2016, followed by seven more in 2017, one in 2018, and two in 2021. Currently, as of May 2025, 11 SFBs are operational in India.

Importance of Small Finance Bank in India: