🧵While we in Fintech are Hoping for Challenger/Neo Banking Licences from RBI. Let's understand more about Small Finance Bank and from their success, try to see if a balance between Profitability (for business) and Financial Inclusion (for RBI) can be made for future usecase?👇

Since Independence, Financial Inclusion has been a top policy agenda for the central govt and hence for the RBI also, Post 90s, the accent was more on demand-led private initiatives through self-help groups, followed by the Grameen Bank model of microfinance in India.

Then, in 2015, the RBI granted licenses to two differentiated banks (SFB and Payments Banks) for pushing the financial inclusion. PB had been a mystery category, with no clear business model to operate. SFB was to cater to the diverse needs of the low-income group.

The two KEY expectation was:
1. Priority Sector Lending (75% of their total lending) and 2. Branches for Unbanked (SFB were required to have 25% of their branches in rural unbanked centres (population shall be less than 10,000)

Most (8/10) of the SFBs were previously microfinance institutions (MFIs) with a few notable exceptions, such as the Capital Small Finance Bank which was a local area bank. So, achieving the above TWO pointers was not a thought ask for them.