Economics • Banking & FinanceMedium
In the context of retail banking in India, what is the primary structural difference between Small Finance Banks and Universal Commercial Banks?
A. Small Finance Banks are not allowed to open branches in rural areas.
B. Small Finance Banks are mandated to focus primarily on unserved and underserved segments including small business units, marginal farmers, and micro and small industries, whereas universal banks have no such mandatory sub-target restrictions on general corporate lending.✓ Correct Answer
C. Small Finance Banks are prohibited from issuing debit cards or offering internet banking services.
D. Small Finance Banks do not fall under the direct regulatory purview of the Reserve Bank of India.
💡 Solution & Explanation
Small Finance Banks are niche banking institutions established to promote financial inclusion by extending credit to unserved sections like marginal farmers, micro industries, and small businesses. Unlike universal commercial banks which cater to general corporate lending without mandatory sub-target restrictions on priority sectors, Small Finance Banks must direct seventy-five percent of their net bank credit toward priority sector lending.
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