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:

[UPSC Civil Services Exam – 2017 Prelims]

(a) 1 and 2 only

(b) 2 and 3 only

(c) 1 and 3 only

(d) 1, 2 and 3

Answer: (a)        

Explanation:

As per the RBI guidelines:

• The objectives of setting up of small finance banks will be to further financial inclusion by (a) provision of savings vehicles, and (ii) supply of credit to small business units; small and marginal farmers; micro and small industries; and other unorganised sector entities, through high technology-low cost operations. (Hence statement 1 and 2 is correct)
• There is no explicit provision that SFBs have been setup to encourage setting of businesses in rural areas. (Hence statement 3 is incorrect)