Commercial Bank vs. Small Finance Bank — What's the Difference?

Commercial Banks and Small Finance Banks both play critical roles within the banking sector but serve different primary objectives. Commercial Banks, established as large-scale institutions, cater to a broad clientele, offering a plethora of financial products and services ranging from savings accounts to business loans. Their operations span nationwide, if not globally, and they're recognized by vast infrastructures and presence in main commercial areas.

On the other hand, Small Finance Banks were introduced to focus on financial inclusion. Their primary objective is to serve the marginalized, the underserved, and the small-scale businesses. While Commercial Banks might overlook these sectors due to the scale of their operations, Small Finance Banks thrive by addressing the specific needs of these niche audiences. They provide basic banking services, small loans, and cater to microfinance requirements.

The regulatory requirements for these two entities differ as well. Commercial Banks, given their vast operations, are subject to stringent regulatory norms set by the central banking authority. Small Finance Banks, while still regulated, might have relaxed criteria, especially in terms of capital requirements, to promote their growth and purpose of financial inclusion.

In essence, while both Commercial Banks and Small Finance Banks serve the purpose of banking, they differ in scale, target audience, and the variety of services they offer. Commercial Banks are the giants of the financial world, while Small Finance Banks are the more localized, focused entities serving the grassroots of society.