Question 99 from UPSC CSE 2017 - Current
Affairs

Question

What is the purpose of setting up 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:

IASCODEX · Accepted Answer

Correct Option: A. 1 and 2 only

Strategy: Focus on the core mandate of Small Finance Banks (SFBs). The very name implies a focus on 'small' entities. Statements 1 and 2, which mention 'small business units' and 'small and marginal farmers', are textbook examples of the target groups for financial inclusion, which is the primary goal of SFBs. Statement 3, however, mentions 'encouraging young entrepreneurs'. This is a more specific and promotional role. While providing credit might be a consequence that encourages entrepreneurship, it is not the explicitly stated primary purpose. The main objective is credit supply to underserved sectors, not entrepreneurship development. Therefore, eliminate statement 3, which narrows the answer down to option A.

Key Info: **Small Finance Banks (SFBs)**
Small Finance Banks are a specific category of banking institutions in India licensed by the Reserve Bank of India (RBI) to provide basic banking services and enhance financial inclusion. They are registered as public limited companies under the Companies Act, 2013 and are governed by the provisions of the RBI Act, 1934, and the Banking Regulation Act, 1949.

**Genesis and Objectives**
The concept of SFBs was recommended by the Nachiket Mor Committee (Committee on Comprehensive Financial Services for Small Businesses and Low-Income Households) in 2014. The primary objectives are:

*   **Financial Inclusion:** To further financial inclusion by providing savings vehicles and supplying credit to unserved and underserved sections of the population.
*   **Target Groups:** Their main focus is on small business units, small and marginal farmers, micro and small industries, and other unorganised sector entities.
*   **Services:** They undertake basic banking activities including acceptance of deposits and lending. There is no restriction on the area of operations.

**Regulatory Guidelines**
SFBs must adhere to specific RBI guidelines:

*   **Priority Sector Lending (PSL):** They are required to extend 75% of their Adjusted Net Bank Credit (ANBC) to the sectors eligible for classification as Priority Sector Lending (PSL) by the RBI. In contrast, universal commercial banks are required to extend 40% of ANBC to PSL.
*   **Loan Portfolio:** At least 50% of their loan portfolio must consist of loans and advances of up to ₹25 lakh.
*   **Capital Requirement:** The minimum paid-up voting equity capital for SFBs is ₹200 crore.
*   **CRR and SLR:** They are required to maintain Cash Reserve Ratio (CRR) and Statutory Liquidity Ratio (SLR) just like other scheduled commercial banks.

**Analysis of Statement 3**
Statement 3, 'To encourage young entrepreneurs to set up business particularly in rural areas,' describes a potential outcome of SFB operations rather than a stated primary objective. While access to credit from SFBs can certainly help young entrepreneurs, their mandate is broader and focuses on providing credit to established categories like small businesses and farmers, irrespective of the entrepreneur's age. Specific government schemes like Startup India or Pradhan Mantri MUDRA Yojana (PMMY) are more directly aimed at promoting entrepreneurship.

IASCODEX · Answer

Option B: 2 and 3 only

IASCODEX · Answer

Option C: 1 and 3 only

IASCODEX · Answer

Option D: 1, 2, and 3

What is the purpose of setting up Small Finance Banks (SFBs) in India? To supply credit to small business units. To supply credit to small and marginal farmers. To encourage young entrepreneurs to set up business particularly in rural areas. Select the correct answer using the code given below:

What is the purpose of setting up Small Finance Banks (SFBs) in India?

To supply credit to small business units.

To supply credit to small and marginal farmers.

To encourage young entrepreneurs to set up business particularly in rural areas.
Select the correct answer using the code given below: