Small Finance Bank vs NBFC

  • June 15, 2024
  • Dushyant Sharma
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Both Small Finance Banks (SFBs) and Non Banking Financial Companies (NBFCs) are pretty popular in India. But not many people know the difference between small finance bank vs NBFC.

Small Finance Bank Meaning

Small finance banks are a part of the banking sector within the financial industry that focus on serving the needs of individuals/households with low-income and small business owners. 


Capital Small Finance Bank was the first small finance bank in India which was established in 2016. The small finance bank category's main objective is to support India's goal of greater population financial inclusion. The small finance banks are found in the majority of India's isolated regions, where traditional commercial banking systems are rare.


The reason why small finance banks are needed is because the government wants to provide basic banking services to the unbanked and underbanked population. In addition, low-income families, marginal farmers, and small business units can apply for microloans from small finance banks. Small finance banks are registered as Public Limited Companies under the Companies Act, 2013. Small Finance Banks require SFB license from RBI.

Small Finance Bank Objectives

Small finance bank objectives are:

  • Small finance banks are crucial to make sure that those with low-income and those living in underdeveloped areas get necessary access to financial services and products. SFBs are a good alternative for those consumers who do not have conventional banking facilities’ access.
  • Additionally, SFBs offer fundamental banking services like savings, deposits, and remittances to those who are unable to access regular banking services and are consequently shut out of the financial system and prospects for economic growth.
  • Small finance banks also serve to the low-income households and MSMEs by giving them services such as small loans.
  • Agricultural loans are very important in order to satisfy the demands of the agricultural industry. SFBs help farmers and rural households by offering credit and other financial services to them. 

NBFC Meaning

NBFC full form is Non-Banking Financial Company. A Non-Banking Financial Company (NBFC) is a company registered under the Companies Act, 2013 dealing in the business of loans and advances, acquisition of shares, stocks, bonds, debentures, securities issued by GOI or local authority or other marketable securities of a like nature, leasing, hire-purchase, insurance business, chit business. It does not include any institution whose main business is that of agriculture or industrial activity, purchase/sale of any goods (excluding securities) or providing any services and sale/purchase/construction of a property which is considered as an immovable property.


Any non-banking institution which is a company and has the principal business of receiving deposits under any scheme or arrangement in one lump sum or in installments by way of contributions or in any other manner, is also a non-banking financial company (Residuary non-banking company). NBFCs in India are regulated and supervised by RBI and required to obtain NBFC registration from it.

NBFC Objectives

NBFC objectives are the following:

  • NBFCs have the goal to promote financial inclusion in the country and they do this by extending credit and financial services to the economy’s underserved sectors.
  • NBFCs serve specific financial needs like consumer finance, microfinance, vehicle finance, housing finance and so forth.
  • NBFCs also provide investment related services for wealth management, securities trading and portfolio management.
  • NBFCs offer loans and credit facilities for purchasing assets like machinery, vehicles and equipment.

What is the difference between NBFC and Small Bank?

The difference between NBFC and small bank is that the NBFC cannot accept demand deposits while Small Finance Bank can accept demand deposits. 


Both NBFCs and small finance banks extend their services where commercial banks cannot. But Small finance banks require SFB license from RBI while NBFCs require NBFC registration from RBI. 


NBFCs are regulated under the RBI Act, 1934 whereas Small Finance Banks are regulated under the Banking Regulation Act, 1949. NBFCs must have a minimum Rs. 10 crores as Net Owned Funds. In case of Small Finance Banks, a minimum paid-up capital of Rs. 200 crores is required.


Both NBFC vs small finance bank are important for the financial ecosystem in India due to their distinct roles. Both NBFCs vs small finance banks are regulated by RBI according to different legislations and guidelines. 


NBFCs vs small finance banks are both registered as companies under the Companies Act 2013. However, small finance banks need SFB license and NBFCs require NBFC registration. If you’re planning to open NBFC in India, get in touch with Registrationwala for assistance in NBFC registration.

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Dushyant Sharma
Author: Dushyant Sharma

Hey there, I'm Dushyant Sharma. With the extensive knowledge I've gained in past 8 years, I have been creating content on various subjects such as banking, insurance, telecom, and all the important registration and licensing processes for various companies. I'm here to help everyone with my expertise in these areas through my articles.

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