Abstract:
Though Economic theorists are divided on the matter of whether the economy needs large
number of small banks or small number of large banks, the central bank of India granted
licenses to small banks in a mission to further financial inclusion. In this research, we look at
the business of a Small Finance Bank (SFB) in the context of its mandate to offer banking
services to the underserved and unbanked.
We begin with tracing the developments which lead to the policy decision, and later the
financial inclusion landscape of India through the lenses of savings, credit for agriculture and
micro enterprises. It is found that there hasn’t been significant growth in credit offering to
micro enterprises, and that the small farmers are being deprived of access to credit from
Scheduled Commercial Banks. An overview of financial inclusion efforts in India brings to
light the challenges faced by small banks prior to 2015. Political interference and high NPA’s
were found to be key factors contributing to the same.
The model of SFB has been profitable for Sampath SFB and a few others. An analysis of
data points to a growing portfolio though skewed towards semi-urban spaces with large ticket
size of retail loans. Though priority sector lending may not be the best measure of financial
inclusion, SFB’s are faring well in that regard. Marred by challenges of a unique nature, In a
competitive environment of credit offerings, SFBs Banks are yet to achieve differentiation and
a business model that will address issues including vision drift and over indebtedness.
