The Role of Small Finance Banks in Promoting Financial Inclusion in India

Abstract

With the granting of licenses to 11 payments banks and ten small banks in September 2015, the Indian banking system has seen a significant transformation in terms of reaching out to a new customer and delivery model that was previously unavailable to scheduled commercial banks. The goal of the move was to strengthen the country's financial inclusion. This article examines the importance of financial inclusion for a high-priority sector in India that is currently unbanked or under banked. It highlights the RBI's policy of promoting financial inclusion, as well as the recent licensing of Small Finance Banks to that end. Small finance banks have a strong commitment to serving the rural and urban poor, as well as the unbanked, but they face significant challenges in terms of building the necessary capacity and infrastructure to serve a diverse client base, as well as retraining their existing workforce to provide a more comprehensive service than a typical MFI. The article looks into the standards that the RBI used to license these banks, as well as the challenges and concerns that a diverse group of stakeholders of the SFBs have. Small financing banks' impact on financial inclusion is also a topic of interest for the study.