Introduction / Context:
Microfinance institutions provide small loans to low income households, often in rural or semi urban areas. In India, some successful microfinance companies have later received banking licences and started functioning as commercial banks. This question checks awareness of a landmark event in financial inclusion, namely which microfinance company was the first to evolve into a full fledged commercial bank under the supervision of the Reserve Bank of India.
Given Data / Assumptions:
- The question refers to an Indian microfinance company.
- This company later began operations as a regular commercial bank.
- The options include names of small finance banks and microfinance related organisations.
- We assume familiarity with major financial inclusion initiatives in India.
Concept / Approach:
The concept is to identify which institution transitioned from being a microfinance company to operating as a universal commercial bank. Bandhan, which started as Bandhan Financial Services, is notable for receiving a universal banking licence from the Reserve Bank of India and launching Bandhan Bank. Other options either became small finance banks or remained non bank financial companies, so elimination based on the type of licence helps identify the correct answer.
Step-by-Step Solution:
Step 1: Recall that Bandhan was originally a microfinance institution focusing on women and low income borrowers.
Step 2: In 2015, Bandhan became Bandhan Bank after receiving a universal banking licence from the Reserve Bank of India.
Step 3: Option a, Bandhan Bank, directly represents this transition from microfinance company to commercial bank.
Step 4: Option b, Ujjivan Small Finance Bank, obtained a small finance bank licence, which is a different category from a universal commercial bank.
Step 5: Option c, Equitas Small Finance Bank, is also a small finance bank rather than the first microfinance company to become a regular commercial bank.
Step 6: Option d, Bharat Financial Inclusion, remained a large microfinance player and later became associated with a merger, but it did not itself become a universal commercial bank.
Step 7: Option e is a distractor and is not the known first case of such a transition.
Verification / Alternative check:
An alternative check is to remember major public events. The launch of Bandhan Bank was widely covered in the news as a landmark example of a microfinance institution transforming into a bank. Speeches by national leaders at the inauguration highlighted this achievement. No similar level of publicity marked the other options as first microfinance companies to become commercial banks, which confirms that Bandhan Bank is the correct choice.
Why Other Options Are Wrong:
Option b is incorrect because Ujjivan is a small finance bank and not the first microfinance institution to receive a universal banking licence. Option c is wrong for the same reason, as Equitas became a small finance bank. Option d is incorrect because Bharat Financial Inclusion did not become a standalone commercial bank, even though it is a major microfinance player. Option e is a generic distractor without this specific history.
Common Pitfalls:
A common pitfall is confusion between small finance banks and full commercial banks. Many exam takers also mix up different microfinance institutions because they operate in similar sectors. To avoid errors, students should remember specific milestones, such as Bandhan becoming a universal bank and the distinction between that and a small finance bank licence. Linking each institution with its category is a useful memory technique for banking and financial awareness questions.
Final Answer:
The first Indian microfinance company that started operations as a full fledged commercial bank is Bandhan Bank.
Discussion & Comments