RBI reduces priority sector lending requirement for small finance banks

The Reserve Bank of India (RBI) has reduced the mandatory priority sector lending requirement for small finance banks (SFBs) to 60% from financial year 2025-26 onwards as against existing requirement of 75%.

As per the 'Guidelines for Licensing of Small Finance Banks in Private Sector' dated 27 November 2014 a SFB is required to extend 75% of its Adjusted Net Bank Credit (ANBC) to the sectors eligible for classification as priority sector lending (PSL). Further, while 40% of its ANBC should be allocated to different sub-sectors under PSL, the SFB can allocate the balance 35% to any one or more sub-sectors where it has competitive advantage.

On a review, it has been decided that financial year 2025-26 onwards, the additional component (35%) of PSL shall be reduced to 20%, thereby making the overall PSL target as 60% of ANBC or Credit Equivalent of Off-Balance Sheet Exposures (CEOBE), whichever is higher.

The SFB shall continue to allocate 40% of its ANBC or CEOBE, whichever is higher, to different sub-sectors under PSL as per the extant PSL prescriptions, while the balance 20% shall be allocated to any one or more sub-sectors under the PSL where the bank has competitive advantage.

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