What is the difference between a small finance bank and a commercial bank?

Commercial banks do not have restrictions on the customers that they need to serve, whereas the target customers of small finance banks are unorganized workers, small businessmen, small farmers, micro small and medium enterprises. You can read about the Granting License for Small Finance Banks by the Reserve Bank of India (RBI) in the given link.

The other difference between small finance banks and commercial banks is Commercial banks can open their branches anywhere whereas the small finance banks have to open 25% of their branches in rural areas, in the initial 3 years. Although both types of banks provide loans, the small finance banks have to give 75% of the loans to the priority sector. 

Further readings:

  1. Types of Banks in India – Category and Functions of Banks in India
  2. RBI – Reserve Bank of India [UPSC Indian Economy Notes]

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