As we know banking sector plays an important role for the development of Indian economy. A bank is a financial institution which provides deposits and credits facilities to their customers. Over the past few years banking industry has gone through many changes. The most important change is to introduce Small Finance Bank. It was introduced in Sept 2015. RBI Granted licenses to 10 Small Finance banks. SFBs are those banks who focus to provide the basic banking facility of acceptance of deposits and provide loan facility to customers, small business units, small and marginal farmers, micro and small industries and unorganized sectors. Small Finance banks are solving the basic financial problems and providing 75% of their loans to priority sector comprising of agriculture, small enterprise and low income group. The small finance banks provide financial services like mutual funds, insurance products, pension products etc. but with the prior approval of Reserve Bank of India. The research design is descriptive research design. The secondary data was mainly collected from different web sites of small finance banks. This paper analysis the role of small finance bank in Indian economy also analyses the AU bank. This study tries to measure the challenges faced by Small finance bank.

KEYWORDS:  Banking Sector, Small Finance Bank, Indian Economy and AU Bank.