What is meaning of differentiated banks? Explain two differentiated banks and their functions in India.

Meaning of Differentiated Banks: Differentiated Banks are banking institutions licensed by the RBI to provide specific banking services and products. It is a system that refers to different licenses for different sub-components of the banking sector, such as Limited Banking License, Commercial Banking License, etc. A differentiated license allows a bank to offer products only in select areas such as Small Finance Banks/Payment Banks and banks concentrating on wholesale and long-term financing. The main aim for giving licenses to differentiated banks is to promote financial inclusion and payments. The term 'differentiated banks' indicates that they are different from the usual universal banks. Universal banks like SBI, Canara Bank, etc., can provide almost all products and services. On the other hand, differentiated banks can provide only selected products like credit, payments, deposits, etc., with RBI regulations. As on date, the differentiated banks are of two types: Payment Banks: A payments bank is like any other bank, but operating on a smaller scale without involving any credit risk. In simple words, it can carry out most banking operations but can't advance loans or issue credit cards. It can accept demand deposits (Increased from ₹1 lakh to ₹2 lakhs from 8th April 2021), offer remittance services, mobile payments/transfers/purchases and other banking services like ATM/debit cards, net banking and third-party fund transfers. The main objective of payments bank is to widen the spread of payment and financial services to small businesses, low-income households, migrant labour workforce in a secured technology-driven environment. Small Finance Banks (SFBs): SFBs can be promoted by resident individuals/professionals with 10 years of experience in banking and finance as well as companies and societies owned and controlled by residents. Existing Non-Banking Finance Companies (NBFCs), Micro Finance Institutions (MFIs), and Local Area Banks (LABs) that are owned and controlled by residents are also permitted to convert themselves into SFBs. Promoter/promoter groups should have a five-year successful record of professional experience or of running their businesses to be eligible to promote small finance banks. There is no restriction on operation. At least 50% of the loan portfolio should constitute loans up to ₹25 lakhs. For Forex business, conditions as applicable to category-2 dealers. Functions of Payment Banks and Small Finance Banks: To help in financial inclusion by provision of savings vehicles. Supply of credit to small business units; small and marginal farmers; micro and small industries and other unorganized sector entities, through high technology-low cost operations. The small finance banks shall primarily undertake basic banking activities of acceptance of deposits and lending to unserved and underserved sections including small business units, small and marginal farmers, micro and small industries and unorganized sector entities.