Small finance banks (SFBs) in India are systematically occupying the “blank spaces” left by traditional banks by targeting unserved geographies, neglected customer segments, and small‑ticket products that were historically outside the focus of mainstream finance. They have turned financial inclusion from a policy slogan into a viable business model by combining regulatory incentives, niche specialisation, and technology‑enabled last‑mile reach.
Why Small Finance Banks Were Created?
The idea of SFBs emerged from the Government of India’s and RBI’s push, starting around 2014–15, to build dedicated institutions for last‑mile banking instead of relying only on large universal banks. RBI’s licensing framework for SFBs in 2015 clearly positioned them to provide basic banking services to underserved and unserved populations, especially in rural and semi‑urban areas.
Unlike regular commercial banks, SFBs were mandated to keep a high share of their credit directed to priority sectors such as agriculture, micro and small enterprises, and weaker sections. Even after RBI reduced the formal target from 75% to 60% of Adjusted Net Bank Credit, this is still much higher than the requirement for most other bank categories, keeping inclusion at the core of their business model.
Capturing Underserved Customer Segments
A key blank space SFBs address is the “missing middle” of micro and small enterprises, informal workers, and low‑income households that are too risky or too small for mainstream lenders. SFBs often evolve from microfinance institutions (MFIs), carrying deep experience in group lending, cash‑flow‑based assessments, and relationship banking with poor and low‑documentation customers.
These banks lend to small and marginal farmers, tiny shopkeepers, street vendors, individual professionals, and self‑help groups who previously depended on informal moneylenders or MFIs alone. By offering formal savings, recurring deposits, and micro‑loans side by side, SFBs create a single banking touchpoint for households that had scattered or entirely cash‑based finances.
Filling Geographic White Spaces
Mainstream banking density in India is still uneven, with many rural and peri‑urban pockets either unbanked or critically underbanked. RBI’s guidelines for SFBs require a significant proportion of branches to be in unbanked rural centres, ensuring that expansion focuses precisely on locations where financial access is lowest.
As a result, SFB branch networks and service outlets are heavily skewed towards small towns, growth corridors outside metros, and rural hinterlands, rather than prime urban business districts. In many such areas, SFBs act as the first full‑service bank with deposit, credit, remittance, and sometimes small insurance or pension products, effectively turning “bank deserts” into active banking markets.
Product Innovation For First‑Time Users
SFBs design products around small sizes, flexible repayment, and higher touch, rather than chasing large corporate or high‑income retail customers. On the liabilities side, several SFBs use slightly higher deposit interest rates and simple account structures to attract first‑time savers and pull cash out of informal savings channels like chit funds or cash at home.
On the lending side, their portfolios largely consist of micro and small ticket loans for agriculture, dairy, petty trade, home improvement, two‑wheelers, and working capital for tiny firms. Many SFBs also cross‑sell micro‑insurance, pension schemes, and remittance services, allowing low‑income customers to access a basic financial suite without dealing with multiple institutions.
Technology And Last‑Mile Delivery
Another blank space SFBs exploit is the gap between digital infrastructure and user capability. India has strong platforms such as Aadhaar, UPI, and direct benefit transfer (DBT), but many poor customers still need assisted, high‑trust interfaces. SFBs typically adopt a “phygital” model that combines local branches, field officers, and business correspondents with mobile apps, micro‑ATMs, and biometric authentication.
This design lets them open accounts and disburse loans quickly while still relying on face‑to‑face engagement to build trust and explain products to low‑literacy users. It also allows efficient delivery of government payments and subsidies into customer accounts, reinforcing habits of using the banking system for daily financial life.
Impact, Risks, And Sustainability
Studies using RBI data and case evidence indicate that SFBs have significantly contributed to increasing account ownership, credit penetration, and savings mobilisation in rural and low‑income segments since their introduction. They have also diversified the banking ecosystem by adding specialised, inclusion‑oriented players instead of relying solely on large banks and regional rural banks.
However, the very features that make SFBs inclusive—small‑ticket loans, dispersed customers, high personal contact—also drive up operating costs and credit risk. Regulatory compliance, competition from larger banks and fintechs, and pressure to maintain profitability while serving high‑cost segments remain ongoing challenges, pushing SFBs to continually refine technology, risk management, and product design.
How SFBs Occupy The “Blank Space”?
Bringing these elements together, SFBs capture blank space in financial inclusion along three dimensions at once: geography (unbanked and underbanked regions), clientele (low‑income and informal segments), and product structure (tiny, customised, often high‑touch accounts and loans). Their differentiated license, rural‑skewed branch obligations, and priority‑sector‑heavy portfolios hard‑wire inclusion into their business strategy rather than treating it as a side activity.
If they can manage costs, maintain asset quality, and intelligently use technology while retaining their grassroots strengths, SFBs will remain central players in India’s journey from basic account opening to deeper, more meaningful financial inclusion.
Here is the current list of licensed Small Finance Banks (SFBs) in India with their official websites.
| Small Finance Bank | Official Website |
|---|---|
| AU Small Finance Bank Ltd. | https://www.au.bank.in/ |
| Capital Small Finance Bank Ltd. | https://www.capital.bank.in/ |
| Equitas Small Finance Bank Ltd. | https://equitas.bank.in/ |
| ESAF Small Finance Bank Ltd. | https://www.esaf.bank.in/ |
| Suryoday Small Finance Bank Ltd. | https://suryoday.bank.in/ |
| Ujjivan Small Finance Bank Ltd. | https://www.ujjivansfb.bank.in/ |
| Utkarsh Small Finance Bank Ltd. | https://www.utkarsh.bank.in/ |
| Jana Small Finance Bank Ltd. | https://www.jana.bank.in/ |
| Shivalik Small Finance Bank Ltd. | https://shivalik.bank.in/ |
| Unity Small Finance Bank Ltd. | https://unity.bank.in/ |
| Slice Small Finance Bank Ltd. | https://slice.bank.in/ |
Note: All banking websites are now shifted to a new domain (.bank.in) as per RBI guidelines, to enhance online security and prevent fraud, as mandated by the Reserve Bank of India (RBI). This change is made to strengthen cybersecurity and build customer trust in online banking by preventing digital payment fraud.