Page 31 - Banking Finance August 2025

ARTICLE

Small Finance Banks:

The Backbone of India's

MSMEs Revolution and

Financial Empowerment

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

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.

"Every small business is a potential engine for Evolution of Small Finance Banks in
economic growth. Small Finance Banks provide India:
the financial support that fuels the dreams of The concept of Small Finance Banks (SFBs) was introduced
millions of entrepreneurs." in the 2014-15 Union Budget, while the RBI releasing com-
prehensive guidelines in November 2014 to facilitate the
Introduction: licensing of these banks, primarily aimed at promoting fi-
nancial inclusion. Post receiving their licenses from the RBI,
Small Finance Banks (SFBs) are a new entrant into the In- a total of 12 SFBs have commenced operations in India, while
dian banking system, with a unique emphasis on promoting one amalgamated with another. The first two, Capital Small
financial inclusion. Small Finance Bank is a type of banking Finance Bank and Equitas Small Finance Bank, began opera-
institution conceptualized and regulated by the RBI with aim tions in 2016, followed by seven more in 2017, one in 2018,
to deliver essential banking services in areas lacking access and two in 2021. Currently, as of May 2025, 11 SFBs are
to financial facilities. They have witnessed a rapid growth
operational in India.
in their branch network and asset base while maintaining a
healthy asset quality and generating high return on assets.
Importance of Small Finance Bank in

SFBs have emerged as a popular banking alternative in In- India:
dia, especially among underserved populations such as small India is presently at a pivotal moment in its development
businesses, micro-entrepreneurs, and low-income house- journey. Over the past 75 years, we have evolved from an
holds. SFBs offer a wide variety of banking services, includ- agrarian economy to one driven by industry and services.
ing savings and current accounts, fixed and recurring depos-
However, achieving a per capita Gross National Income that
its, loans, and remittance services.
is comparable to that of developed economies requires a

28 | 2025 | AUGUST | BANKING FINANCE