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.