Introduction
The concept of Small Finance Banks (SFBs) was introduced by the Reserve Bank of India (RBI) as part of its strategy to promote financial inclusion and expand formal banking services to underserved sections of society. The objective was to create specialized banks that would focus on small borrowers, farmers, micro-enterprises, and low-income households who often lacked access to traditional banking services.
Release of Draft Guidelines (2014)
The journey of Small Finance Banks began on 17 July 2014 when the Reserve Bank of India issued draft guidelines for setting up Small Finance Banks. The RBI invited comments and suggestions from financial institutions, experts, stakeholders, and the general public regarding the proposed framework.
After reviewing the feedback received from various stakeholders, the RBI released the final guidelines on 27 November 2014. Interested applicants were required to submit their applications by 16 January 2015.
Applications for SFB Licences
The proposal received significant interest from the financial sector. In February 2015, the RBI published a list of applicants seeking Small Finance Bank licences. A total of 72 entities applied for licences.
To evaluate these applications, the RBI constituted an External Advisory Committee headed by former RBI Deputy Governor Usha Thorat. The committee examined the applications on various parameters such as financial strength, governance standards, experience in financial services, and ability to promote financial inclusion.
Grant of In-Principle Licences (2015)
On 17 September 2015, the RBI announced that ten applicants had been granted “in-principle” approval to establish Small Finance Banks. These entities were given eighteen months to fulfill all licensing requirements and commence banking operations.
A significant feature of the selected entities was that most of them were Microfinance Institutions (MFIs) and Non-Banking Financial Companies (NBFCs). This reflected the RBI’s objective of converting successful microfinance institutions into regulated banks capable of offering a wider range of financial services.
Beginning of Operations
The first Small Finance Bank to commence operations was Capital Small Finance Bank, which started functioning on 24 April 2016. Originally operating as Capital Local Area Bank, it became the first institution in India to transform into a Small Finance Bank. Its headquarters is located in Jalandhar, Punjab.
Following Capital Small Finance Bank, several other SFBs commenced operations between 2016 and 2018, significantly expanding the reach of banking services to underserved areas.
Transition of Urban Cooperative Bank into SFB
A major milestone occurred on 26 April 2021 when the RBI granted in-principle approval to Shivalik Mercantile Co-operative Bank Limited for its transition into a Small Finance Bank.
This was a historic development because Shivalik became India’s first Urban Cooperative Bank (UCB) to convert into a Small Finance Bank. After conversion, it began operating as Shivalik Small Finance Bank with its headquarters in Noida, Uttar Pradesh.
Establishment of Unity Small Finance Bank
Another significant development took place in October 2021. On 12 October 2021, the RBI granted a Small Finance Bank licence to Unity Small Finance Bank.
Unity Small Finance Bank was promoted jointly by Centrum Financial Services Limited and BharatPe. The bank was specifically created to take over the assets and liabilities of the crisis-hit Punjab and Maharashtra Cooperative (PMC) Bank.
The bank officially commenced operations on 1 November 2021 under the leadership of Inderjit Camotra as Managing Director and Chief Executive Officer. This marked one of the most significant rescue operations in India’s banking history.
Licensed Small Finance Banks in India
The following institutions have received Small Finance Bank licences and commenced operations:
| S. No. | Original Promoter / Institution | Commencement Date | Small Finance Bank | Headquarters |
|---|---|---|---|---|
| 1 | Ujjivan Financial Services Pvt. Ltd. | 1 February 2017 | Ujjivan Small Finance Bank | Bengaluru |
| 2 | Janalakshmi Financial Services Pvt. Ltd. | 29 March 2018 | Jana Small Finance Bank | Bengaluru |
| 3 | Equitas Holdings Pvt. Ltd. | 5 September 2016 | Equitas Small Finance Bank | Chennai |
| 4 | AU Financiers India Ltd. | 19 April 2017 | AU Small Finance Bank | Jaipur |
| 5 | Capital Local Area Bank Ltd. | 24 April 2016 | Capital Small Finance Bank | Jalandhar |
| 6 | ESAF Microfinance | 17 March 2017 | ESAF Small Finance Bank | Thrissur |
| 7 | RGVN North East Microfinance Ltd. | 17 October 2017 | North East Small Finance Bank (later Slice SFB) | Guwahati |
| 8 | Suryoday Microfinance Pvt. Ltd. | 23 January 2017 | Suryoday Small Finance Bank | Navi Mumbai |
| 9 | Utkarsh Microfinance Pvt. Ltd. | 23 January 2017 | Utkarsh Small Finance Bank | Varanasi |
| 10 | Shivalik Mercantile Co-operative Bank Ltd. | 26 April 2021 | Shivalik Small Finance Bank | Noida |
| 11 | Centrum Financial Services Ltd. & BharatPe | 1 November 2021 | Unity Small Finance Bank | Mumbai |
| 12 | Future Financial Services & Disha Microfin | — | Fincare Small Finance Bank | Ahmedabad |
Recent Developments
The Small Finance Bank sector has continued to evolve through mergers and regulatory changes. One of the most notable developments was the merger of Fincare Small Finance Bank with AU Small Finance Bank, which became effective in 2024.
Another historic milestone occurred in 2025 when the RBI granted in-principle approval to AU Small Finance Bank for conversion into a Universal Bank, making it the first Small Finance Bank to receive such approval.
Significance of Small Finance Banks
Since their introduction, Small Finance Banks have played a major role in deepening financial inclusion in India. They have successfully expanded banking services to rural and semi-urban areas, increased access to institutional credit, promoted savings among low-income households, and supported the growth of micro and small enterprises.
By focusing on underserved segments of society, Small Finance Banks have become an important pillar of India’s inclusive banking framework and continue to contribute significantly to economic development and financial empowerment.