What is the purpose of setting up of Small Finance Banks (SFBs) in India? 1. To supply credit to small business units 2. To supply credit to small and marginal farmers 3. To encourage young entrepreneurs to set up business particularly in rural areas. Select the correct answer using the codes given below:

The correct answer is A (1 and 2 only). SFBs were set up under RBI's 2015 licensing guidelines to provide basic banking services to the unserved and underserved. Their mandate includes supplying credit to small business units, small and marginal farmers, micro and small industries, unorganised sector entities and small borrowers.

Statement 1 is correct because lending to small business units is a core objective of SFBs. Statement 2 is correct because credit to small and marginal farmers is explicitly among their stated purposes.

Statement 3 is wrong. Encouraging young entrepreneurs to set up businesses in rural areas is not a stated purpose of SFBs. Their focus is financial inclusion through deposits and credit, not promoting entrepreneurship as such.

• Core concept: SFBs are a niche category under RBI's differentiated banking licence framework, alongside payments banks and local area banks. They exist to deepen credit access where commercial banks have been thin.

Mains link: this sits in the financial inclusion debate, including how differentiated licences were used to widen access and the trade-off between small-ticket lending and asset quality.

Note: the first SFBs began operating in 2016-17, and RBI's licensing norms have been revised since, so check current guidelines for present-day eligibility or capital rules.

Trap: candidates see "rural" and "young entrepreneurs" and assume a development-sounding objective must be included. Stick to the borrower categories RBI actually lists.