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:

Correct Answer: 1 and 2 only

Explanation:

Small Finance Banks (SFBs) are a niche category of banks established by the Reserve Bank of India (RBI) under the guidance of the Nachiket Mor Committee recommendations. Their primary goal is to further financial inclusion by extending basic banking services to unserved and underserved sections of the population.

Let us analyze each of the given statements:

1. To supply credit to small business units:
This statement is correct. One of the principal objectives of Small Finance Banks is to provide institutional credit to micro and small business units, micro industries, and unorganized sector entities that usually lack access to formal banking institutions.

2. To supply credit to small and marginal farmers:
This statement is correct. Small Finance Banks focus heavily on rural and semi-urban areas to serve small and marginal farmers, agricultural laborers, and micro-enterprises by fulfilling their savings and credit needs.

3. To encourage young entrepreneurs to set up business particularly in rural areas:
This statement is incorrect. While encouraging entrepreneurship may be an indirect benefit of improved access to credit, it is not a specific, officially defined primary objective for the setting up of SFBs. Government schemes like MUDRA, Stand Up India, or Startup India specifically target youth/entrepreneurs, whereas SFBs were set up broadly for financial inclusion of small business units, small/marginal farmers, and micro enterprises.

Therefore, statements 1 and 2 correctly describe the purpose of setting up Small Finance Banks in India.