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Q40 (IAS/2017) Economy › Money, Banking & Inflation › Banking structure Official Key

What is the purpose of setting up of 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:

Result
Your answer: —  ·  Correct: A
Explanation

The correct answer is option A (1 and 2 only).

The objectives of setting up small finance banks include furthering financial inclusion by provision of savings vehicles and supply of credit to small business units, small and marginal farmers, micro and small industries, and other unorganised sector entities[1]. The small finance banks shall primarily undertake basic banking activities of acceptance of deposits and lending to unserved and underserved sections including small business units, small and marginal farmers, micro and small industries and unorganized sector entities[2].

Therefore, statements 1 and 2 are correct as they directly align with the stated purposes of SFBs. However, statement 3 is incorrect because the specific purpose of "encouraging young entrepreneurs to set up business particularly in rural areas" is not mentioned in the official objectives of Small Finance Banks. While SFBs do provide credit to small businesses and operate in underserved areas, their mandate is broader financial inclusion rather than specifically targeting young entrepreneurs in rural areas.

Sources
  1. [1] https://en.wikipedia.org/wiki/Small_finance_bank
  2. [2] Indian Economy, Vivek Singh (7th ed. 2023-24) > Chapter 2: Money and Banking- Part I > 21. Payment Banks: > p. 87
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Don’t just practise – reverse-engineer the question. This panel shows where this PYQ came from (books / web), how the examiner broke it into hidden statements, and which nearby micro-concepts you were supposed to learn from it. Treat it like an autopsy of the question: what might have triggered it, which exact lines in the book matter, and what linked ideas you should carry forward to future questions.
Q. What is the purpose of setting up of Small Finance Banks (SFBs) in India? 1. To supply credit to small business units 2. To supply credi…
At a glance
Origin: Books + Current Affairs Fairness: Moderate fairness Books / CA: 6.7/10 · 3.3/10
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This question is a classic 'Official Mandate vs. General Good' trap. Statements 1 and 2 are verbatim from RBI guidelines found in standard texts. Statement 3 sounds positive but adds a specific demographic ('young') not present in the official definition. Strategy: For institutions, memorize the exact beneficiary list; do not assume 'nice-sounding' goals are official objectives.

How this question is built

This question can be broken into the following sub-statements. Tap a statement sentence to jump into its detailed analysis.

Statement 1
Did the purpose of setting up Small Finance Banks (SFBs) in India include supplying credit to small business units?
Origin: Direct from books Fairness: Straightforward Book-answerable
From standard books
Indian Economy, Nitin Singhania .(ed 2nd 2021-22) > Chapter 7: Money and Banking > Small Finance Banks > p. 189
Presence: 5/5
“Small Finance Banks (SFBs) are SCBs that lend to small business units, small and marginal farmers, micro and small industries, unorganized sector entities, etc.”
Why this source?
  • Explicitly states SFBs are scheduled commercial banks that lend to small business units.
  • Lists small business units alongside other target borrowers (small/marginal farmers, micro/small industries), directly matching the statement.
Indian Economy, Vivek Singh (7th ed. 2023-24) > Chapter 2: Money and Banking- Part I > 21. Payment Banks: > p. 87
Presence: 5/5
“2015, RBI granted license to 10 applicants for Small Finance Banks which is a step in the direction of furthering the financial inclusion.• The small finance banks shall primarily undertake basic banking activities of acceptance of deposits and lending to unserved and underserved sections including small business units, small and marginal farmers, micro and small industries and unorganized sector entities.• There will not be any restriction in the area of operations of small finance banks.• The small finance banks will be required to extend 75% of its total credit to the sectors eligible for classification as priority sector lending (PSL) by the RBI.• At least 50% of its loan portfolio should constitute loans of up to Rs25 lakhs• Both payment banks and small finance banks are niche or differentiated banks i.e., specialized in certain banking functions and not universal.”
Why this source?
  • Specifies SFBs primarily undertake lending to unserved/underserved sections including small business units.
  • Provides policy context (role in financial inclusion and lending focus), reinforcing purpose.
Indian Economy, Nitin Singhania .(ed 2nd 2021-22) > Chapter 8: Financial Market > 7.54 Indian Economy > p. 240
Presence: 4/5
“Recently, KCC facility has been extended also for animal husbandry and fisheries. • Small Finance Banks (SFBs) and Payments Banks were given licences in 2015. It was 8. done to promote small savings accounts, remittance services and credit facility for migrant labourers, small and marginal farmers, micro and small industries and unorganized sector entities.• 9. India Post Payments Bank (IPPB) was launched in 2018. There are over 1.55 lakh post offices, and more than 3 lakh postmen and Grameen Dak Sewaks that are deepening financial inclusion.”
Why this source?
  • Notes SFB licences were given to promote credit facilities for small/marginal farmers, micro and small industries and unorganised sector — groups that include small business units.
  • Supports the broader objective of SFBs to expand credit to smaller economic actors.
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