The Reserve Bank of India (RBI) has introduced two types of banks: Small Finance Banks (SFBs) and Payment Banks (PBs). Although both aim to provide banking services to the underbanked and unbanked sections of society, there is a significant difference in their objectives, areas of operation, services offered and regulatory requirements.
Let’s break down the key differences between Small Finance Banks and Payments Banks in detail.
What is a Small Finance Bank (SFB)?
Small finance banks are financial institutions that provide financial services such as accepting deposits and lending to small business units, small and marginal farmers, micro and small industries and other unorganised sector entities.
Main Objectives:
- To enhance financial inclusion by providing credit and financial services to the underserved and unbanked.
- To mobilise savings from rural and semi-urban areas.
Services Offered:
- Accept all types of deposits
- Provide loans and advances to micro and small enterprises, agriculture and low-income individuals.
- Provide ATM/Debit Cards, Internet Banking and Mobile Banking.
- Can distribute mutual funds and insurance products permitted by the RBI.
What is a Payments Bank (PB)?
Payments Bank offers small savings accounts and payment/remittance services to the migrant labour workforce, low-income households, small businesses and other unorganised sector entities.
Key Objectives:
- To provide basic banking services such as deposits, remittances and digital transactions in areas where the reach of traditional banks is limited.
- To promote a cashless economy and enhance digital financial inclusion.
Services Offered:
- Accept deposits up to Rs 2 lakh per customer (limit set by RBI by 2024).
- Facilitate money transfers, bill payments, and mobile recharges.
- Issue debit cards/ATM cards.
- Offer UPI and digital wallet services.
Key Differences Between Small Finance Banks and Payment Banks
| Parameter | Small Finance Bank | Payment Bank |
| Objective | Financial inclusion through deposit and lending services | Promote digital payments and remittances |
| Deposit Acceptance | Accepts all types of deposits (savings, fixed, recurring) | Accepts only demand deposits (up to ₹2 lakh) |
| Lending Services | Can provide loans and advances | Cannot provide loans or credit products |
| Target Audience | Migrant workers, small businesses, and digital users | Migrant workers, small businesses, digital users |
| Capital Requirement | ₹200 crore | ₹100 crore |
| Priority Sector Lending | 75% of ANBC must be allocated to priority sectors | Not applicable |
| Investment of Deposits | Can use deposits for lending | Must invest in government securities |
| Credit Card Issuance | Not allowed | Not allowed |
| Examples | AU Small Finance Bank, Ujjivan Small Finance Bank | Paytm Payments Bank, Airtel Payments Bank |
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Difference between Small Finance Bank and Payment Bank FAQ
Yes, as per RBI guidelines, a Payments Bank can apply for conversion into a Small Finance Bank after five years of operations, subject to regulatory approval.
Yes, both SFBs and PBs are regulated by RBI, and deposits up to ₹5 lakh per depositor are insured under the Deposit Insurance and Credit Guarantee Corporation (DICGC).
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