Small Finance Banks in India: A Systematic Literature Review on Financial Inclusion, Performance, Challenges and Future Prospects

Abstract

Small Finance Banks (SFBs) were introduced in India by the Reserve Bank of India with the primary objective of promoting financial inclusion and extending formal banking services to unserved and underserved sections of society. These banks mainly cater to small farmers, micro and small enterprises, low-income households and customers in rural and semi-urban areas. Since their establishment, SFBs have emerged as an important component of the Indian banking system by mobilizing savings, providing credit facilities and supporting inclusive economic growth.

The present study undertakes a Systematic Literature Review (SLR) of research conducted on Small Finance Banks in India. The review analyzes existing studies related to the performance, profitability, operational efficiency, challenges and contribution of SFBs toward financial inclusion. Relevant literature published in journals, reports and academic sources has been systematically examined to identify major themes and research trends.

The findings of the review indicate that SFBs have made significant progress in expanding banking outreach and improving access to finance for marginalized groups. However, these institutions continue to face challenges such as high operating costs, rising non-performing assets, regulatory compliance pressures, limited capital base and intense competition from commercial banks and fintech firms.

The review concludes that Small Finance Banks possess strong potential to strengthen India’s financial inclusion agenda, provided they address operational and financial constraints efficiently.