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

Abstract

Small Finance Banks are a type of niche banks in India which can provide basic banking service of acceptance of deposits and lending. The aim behind setting up of such banks is to provide financial inclusion to sections of the society not being served by the traditional banks, such as small business units, small and marginal farmers, micro and small industries and unorganized sector. Financially excluded people not accessing the benefits provided by Indian government for their economic and social development. When the country achieves complete financial inclusion then only the country will achieve its economic development. The present study is focus on the strategies followed by the government of India for bringing people into the financial inclusiveness. The role played by small finance banks from the inception and facing the challenges in achieving financial inclusion. This study covers trends of financial inclusion in India from 1956 to 2016 and back ground of new small finance banks. The branch network of the SFBs is rather extensive and diversified. In the year 2019, there were 3533 SFB bank branches throughout the country spread across 31 states and union territories, and 46553 districts. The challenges faced by small finance banks are high costs of transformation efforts and cost of deposit mobilization, competition, controlling of NPAs, and adoption of technology, prudential norms and issues in human resource management. Former RBI deputy governor KC Chakrabarty suggests that whatever model used by small finance banks, it’s important that they lessen the burden of the borrower and finance always exploits. Licences for small finance banks are now issued to existing micro finance institutions which create more competition.