UPSC Prelims 2017 Question:

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:

Explanation: 

• Small Finance Banks are a new entrant into the Indian banking system with a differentiated focus on financial inclusion. The specific mandate assigned to SFBs is to further the cause of financial inclusion by 
  • Providing savings vehicles
  • Supplying credit to small business units, including small and marginal farmers, micro and small industries; and other unorganized sector entities. So, points 1 and 2 are correct.
  • Various low income groups and the migrant workforce through high technology-low cost operations.
    
    
• Therefore, its objective is not particularly focussed on enabling youth entrepreneurship in rural areas. So, point 3 is not correct.
  
  
• These can be defined as differentiated financial institutions, considering their focus on serving the population with small finance needs. They have been set up in the private sector, and thus, differ from Regional Rural Banks (RRBs), banking institutions created with the objective of including the under-served sections with predominant government shareholding.
  
  

Therefore, option (1) is the correct answer.

Subject: Economics | Money and Banking