Economy

Small Finance Banks and Payments Banks

Also: small finance bank, payments bank, SFB, differentiated banks

Definition

Two kinds of "differentiated" bank licensed by the RBI since 2015 to widen financial inclusion: small finance banks take deposits and lend mainly to small borrowers, while payments banks take small deposits and offer payments and remittance services but cannot lend.

Summary card: Small Finance Banks and Payments Banks. Idea came from the Nachiket Mor Committee (2014). Both need minimum paid-up capital (SFB now Rs 200 crore). SFBs: 75% of adjusted net bank credit to priority sectors. Payments banks: deposit cap Rs 2 lakh per customer. Payments banks cannot lend or issue credit cards — Summary card © UPSCPrep.in

Background and evolution

For decades India tried to bring banking to the poor through public sector banks, regional rural banks and cooperatives. Account numbers grew, yet many small farmers, street vendors and migrant workers still relied on moneylenders and informal transfers. A universal bank, with large branches, high costs and a broad product range, often found small accounts and tiny loans unprofitable. The Nachiket Mor Committee on comprehensive financial services for small businesses and low-income households suggested a different route in 2014: create specialised banks built around particular needs.

The RBI acted on this idea in 2014–15. It issued guidelines and then granted "in-principle" approval to ten applicants for small finance banks, most of them existing microfinance institutions, and eleven for payments banks, including telecom companies, India Post and fintech firms. Several payments bank applicants later surrendered their licences because the business model proved hard. In 2019 the RBI moved to "on tap" licensing for SFBs, allowing applications at any time. This page looks at the two models as a business and regulatory design question; the broader structure of Indian banking is covered elsewhere.

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Last reviewed: 23 October 2026 · Original UPSCPrep.in content.