What is Small Finance Bank – Meaning, Working & Products Offered | AU Small Finance Bank
Gateway to Digital Life. Download AU 0101.

What is a Small Finance Bank?

    The banking sector plays a crucial role in the functioning of the Indian economy. Apart from Commercial Banks, the economy has witnessed the rollout of some new banking models like payments and Small Finance Banks (SFBs) under the regulation of the Reserve Bank of India (RBI). In this blog, let’s understand what a Small Finance Bank is, how it works, what are the products offered by SFBs and more!


    Small Finance Bank Meaning

    Small Finance Banks in India are a specific segment of banking created by RBI, under the guidance of the Government of India. They were introduced with the objective of furthering financial inclusion by primarily extending basic banking services to unserved and underserved sections including small and marginal farmers, small business units, micro and small industries and unorganized entities. 

    Small finance institutions offer all basic banking services including lending and taking deposits. After the announcement during Union Budget for the year 2014-15, RBI issued the guidelines for Small Finance Banks in November 2014. Nearly 72 entities from across segments applied for the license, while only 10 of these were provided the license on 24th November 2014. AU Financiers was the only asset-based NBFC to get this coveted license.


    Small Finance Banks in India

    A majority of our population lives in rural areas. And it is a challenge to extend banking services to the remotest locations in India. The expansion of Small Finance Banks in India aims to provide access to bank credit and services to unbanked and under-banked regions of India.


    How do Small Finance Banks work?

    Small Finance Banks basically work as savings vehicles as well, as they are engaged in offering credit facilities to small business units, micro and small industries, small and marginal farmers and other unorganised sectors through their advanced technology & low-cost operations.

    Below is the scope of activities included in the working of a Small Finance Bank:

    • SFBs in India primarily carry out basic banking activities to serve unserved and underserved sections in the country.
    • They can offer deposits as well as loan products but cannot set up any subsidiaries to offer any non-banking financial services.

    Are Small Finance Banks under RBI?

    Yes, Small Finance Banks are operational under the regulation of the RBI in India, under the purview of the apex bank’s Banking Ombudsman Scheme, 2006, as amended from time to time. SFBs are registered as public limited companies under the Companies Act, 2013 and governed by Banking Regulations Act, 1949; RBI Act, 1934 and other relevant Statutes and Directives from time to time. 


    Products and services offered by Small Finance Banks

    Small Finance Banks offer basic banking services such as Savings Accounts, Current Accounts, Fixed Deposits, Recurring Deposits, Loans, etc.

    The banks can undertake such simple activities with prior approval of the RBI and after complying with the requirements. The activities do not require any commitment of own funds and they can be engaged in the distribution of mutual fund units, pension products, insurance products, etc. 

    The SFBs can even become Authorised Dealer in foreign exchange business as per the requirements of their clients.


    What is the difference between NBFC and Small Finance Bank?





    Engaged in the business of loans and advances, acquisition of bonds/debentures/shares, securities issued by the government of India or local authority.

    Small Finance Banks are government authorized entities aimed at offering basic banking facilities to unserved & underserved areas

    Regulated by

    The Department of Non-Banking Supervision (DNBS) under the provisions contained under Chapter III B and C and Chapter V of the Reserve Bank of India Act, 1934.

    RBI under Banking Regulations Act, 1949; RBI Act, 1934 and others

    Credit Creation

    NBFCs do not offer Credit

    SFBs offer Credit facilities

    Demand Deposit

    NBFCs do not accept demand deposits

    Demand deposits are acceptable by SFBs

    Transaction Services

    Not offered

    Offered by SFBs


    AU Small Finance Bank Journey

    We started our journey in the year 1996, as erstwhile AU Financiers (India) Limited. For the last two decades, AU Small Finance Bank has been relentlessly working in the underbanked and unbanked areas. Today, AU Small Finance Bank has a network of 900+ touchpoints across India. We are also listed on National Stock Exchange and Bombay Stock Exchange.

    Read More: About AU Small Finance Bank Full Form, Brand Ethos & Tagline


    AU Small Finance Bank Products & Services

    AU Small Finance Bank offers a complete gamut of asset & liability products, viz. Savings Accounts, Current AccountsLocker, ATM, Fixed DepositRecurring Deposit and all kinds of assets-backed loan products such as Vehicle Finance, MSME loans and SME loans.

    To meaningfully contribute to the purpose of financial inclusion and simultaneously make banking easy and accessible for every Indian, AU Small Finance Bank proposes to reinvent banking through Aadhaar-linked biometric account opening, minimal paperwork/forms, the concept of making every customer an AU Small Finance Bank customer and not a branch customer with tailor-made solutions.


Open Account