{"id":341411,"date":"2025-06-26T16:09:51","date_gmt":"2025-06-26T10:39:51","guid":{"rendered":"https:\/\/forumias.com\/blog\/?p=341411"},"modified":"2025-06-26T16:09:51","modified_gmt":"2025-06-26T10:39:51","slug":"rbi-lowers-priority-sector-lending-target-for-small-finance-banks","status":"publish","type":"post","link":"https:\/\/forumias.com\/blog\/rbi-lowers-priority-sector-lending-target-for-small-finance-banks\/","title":{"rendered":"RBI lowers priority sector lending target for Small Finance Banks"},"content":{"rendered":"<p><strong>News:<\/strong> The Reserve Bank of India (RBI) has relaxed priority sector lending (PSL) norms for small finance banks (SFBs).<\/p>\n<h2>About Priority Sector Lending (PSL)<\/h2>\n<figure id=\"attachment_341414\" aria-describedby=\"caption-attachment-341414\" style=\"width: 440px\" class=\"wp-caption aligncenter\"><img data-recalc-dims=\"1\" loading=\"lazy\" decoding=\"async\" class=\" wp-image-341414\" src=\"https:\/\/i0.wp.com\/forumias.com\/blog\/wp-content\/uploads\/2025\/06\/Source-Banknews.png?resize=440%2C245&#038;ssl=1\" alt=\"\" width=\"440\" height=\"245\" srcset=\"https:\/\/i0.wp.com\/forumias.com\/blog\/wp-content\/uploads\/2025\/06\/Source-Banknews.png?resize=300%2C167&amp;ssl=1 300w, https:\/\/i0.wp.com\/forumias.com\/blog\/wp-content\/uploads\/2025\/06\/Source-Banknews.png?resize=1024%2C571&amp;ssl=1 1024w, https:\/\/i0.wp.com\/forumias.com\/blog\/wp-content\/uploads\/2025\/06\/Source-Banknews.png?resize=768%2C428&amp;ssl=1 768w, https:\/\/i0.wp.com\/forumias.com\/blog\/wp-content\/uploads\/2025\/06\/Source-Banknews.png?w=1519&amp;ssl=1 1519w\" sizes=\"auto, (max-width: 440px) 100vw, 440px\" \/><figcaption id=\"caption-attachment-341414\" class=\"wp-caption-text\">Source &#8211; Banknews<\/figcaption><\/figure>\n<ul>\n<li>It refers to the <strong>mandatory lending targets<\/strong> set by the Reserve Bank of India (RBI) for <strong>banks and financial institutions<\/strong> to ensure that certain sectors of the economy receive adequate credit and financial support.\n<ul>\n<li>These guidelines are <strong>issued under the Banking Regulation Act, 1949<\/strong>.<\/li>\n<\/ul>\n<\/li>\n<li><strong>Objective:<\/strong> The objective of priority sector lending is to promote <strong>inclusive growth, reduce regional imbalances, and support marginalized sections of society.<\/strong><\/li>\n<li><strong>Sectors included:<\/strong> The sectors under PSL include:\n<ul>\n<li>Agriculture<\/li>\n<li>Micro, Small and Medium Enterprises (MSMEs)<\/li>\n<li>Education<\/li>\n<li>Housing<\/li>\n<li>Renewable energy<\/li>\n<li>Export credit<\/li>\n<li>Social infrastructure<\/li>\n<\/ul>\n<\/li>\n<li><strong>PSL Targets for Banks<\/strong>\n<ul>\n<li><strong>Domestic commercial and Foreign Banks with 20 branches and above<\/strong> &#8211; The overall PSL target is set at <strong>40 per cent<\/strong> of their total adjusted net bank credit (ANBC) or Credit Equivalent of Off-Balance Sheet Exposures (CEOBE).<\/li>\n<li><strong>Foreign Banks with less than 20 B branches &#8211; <\/strong>The overall PSL target is set at <strong>40 per cent<\/strong> of ANBC or CEOBE, whichever is higher.\n<ul>\n<li>Of this, <strong>up to 32 per cent<\/strong> can be for <strong>export credit<\/strong> and not less than <strong>8 per cent<\/strong> must be for any other priority sector.<\/li>\n<\/ul>\n<\/li>\n<li><strong>For regional rural banks<\/strong> &#8211; The total PSL target is <strong>75 per cent<\/strong> of ANBC or CEOBE whichever is higher.<\/li>\n<li><strong>For small finance banks (SFBs) &#8211; <\/strong>The total PSL target is <strong>60 per cent<\/strong> of ANBC or CEOBE whichever is higher.<\/li>\n<li><strong>Primary (Urban) Co-operative Banks (UCBs) &#8211; <\/strong>PSL Target of <strong>60 per cent<\/strong> of ANBC or CEOBE, whichever is higher.<\/li>\n<li><strong>Payment Banks &#8211; Not subject to PSL targets.<\/strong><\/li>\n<\/ul>\n<\/li>\n<\/ul>\n<table>\n<tbody>\n<tr>\n<td width=\"947\">\n<ul>\n<li><strong>Adjusted Net Bank Credit (ANBC)<\/strong>: It is computed after taking into account <strong>bill discounting<\/strong>, <strong>non-SLR (statutory liquidity ratio) securities <\/strong>and other <strong>exemptions<\/strong> via long-term bonds.\n<ul>\n<li><strong style=\"font-family: inherit;font-size: inherit\">Non-SLR securities<\/strong><span style=\"font-family: inherit;font-size: inherit\"> are debentures, mutual fund units, preference shares, commercial paper, equity shares, etc., issued by a securitization or reconstruction company.<\/span><\/li>\n<\/ul>\n<\/li>\n<li><strong style=\"font-family: inherit;font-size: inherit\">Credit Equivalent of Off-Balance Sheet Exposures (CEOBE):<\/strong><span style=\"font-family: inherit;font-size: inherit\"> It include <\/span><strong style=\"font-family: inherit;font-size: inherit\">items<\/strong><span style=\"font-family: inherit;font-size: inherit\"> that are not included on a <\/span><strong style=\"font-family: inherit;font-size: inherit\">company\u2019s balance sheet<\/strong><span style=\"font-family: inherit;font-size: inherit\"> such as letter of guarantee, letter of credit, deferred payment guarantee, etc.<\/span><\/li>\n<\/ul>\n<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n<h2>Revised RBI Guidelines for PSL BY SFBs<\/h2>\n<ul>\n<li><strong>Earlier:<\/strong> As per the \u2018<strong>Guidelines for Licensing of Small Finance Banks in Private Sector\u2019<\/strong> dated 27 November 2014 a <strong>SFB was required to extend 75%<\/strong> of its ANBC or CEOBE to the sectors eligible for classification as <strong>priority sector lending (PSL).<\/strong>\n<ul>\n<li><strong>Allocations:<\/strong> <strong>40%<\/strong> of its ANBC or CEOBE should be allocated to <strong>different sub-sectors<\/strong> under PSL; the SFB can allocate the <strong>balance 35%<\/strong> to any <strong>one or more sub-sectors<\/strong> where it has competitive <strong>advantage<\/strong>.<\/li>\n<\/ul>\n<\/li>\n<li><strong>Present scenario:<\/strong> Now, from the <strong>financial year 2025-26 onwards<\/strong>, the <strong>additional component (35%) of PSL shall be reduced to 20%,<\/strong> thereby making the overall PSL target as <strong>60%<\/strong> of ANBC or CEOBE, whichever is higher.<\/li>\n<\/ul>\n<h2>About Small Finance Banks (SFBs)<\/h2>\n<ul>\n<li>They are <strong>specialized financial institutions<\/strong> established with the <strong>primary goal<\/strong> of fostering <strong>financial inclusion<\/strong> by offering basic banking services to underserved and unbanked segments of society.<\/li>\n<li><strong>Key Features of Small Finance Banks<\/strong>\n<ul>\n<li><strong>Regulated by the RBI:<\/strong> Operate under the RBI\u2019s Banking Regulation Act, 1949, and other relevant regulations.<\/li>\n<li><strong>Basic Banking Services:<\/strong> Offer savings accounts, current accounts, fixed deposits (FDs), recurring deposits (RDs), and loans.<\/li>\n<li><strong>Scheduled Bank Status:<\/strong> SFBs receive this status upon meeting specific criteria under the RBI Act, 1934.<\/li>\n<li><strong>Focus on Priority Sectors:<\/strong> At least <strong>60% (earlier 75%)<\/strong> of their Adjusted Net Bank Credit (ANBC) is allocated to priority sectors like agriculture and small-scale industries.<\/li>\n<li><strong>Capital Requirements:<\/strong> Minimum paid-up capital is \u20b9200 crore, ensuring financial stability.<\/li>\n<li><strong>No Subsidiaries Allowed:<\/strong> SFBs cannot establish subsidiaries for non-banking financial services.<\/li>\n<\/ul>\n<\/li>\n<li><strong>Regulation and Governance of Small Finance Banks: <\/strong>SFBs are governed by:\n<ul>\n<li>Banking Regulation Act, 1949<\/li>\n<li>RBI Act, 1934<\/li>\n<li>FEMA, 1999<\/li>\n<li>Credit Information Companies (Regulation) Act, 2005<\/li>\n<\/ul>\n<\/li>\n<\/ul>\n","protected":false},"excerpt":{"rendered":"<p>News: The Reserve Bank of India (RBI) has relaxed priority sector lending (PSL) norms for small finance banks (SFBs). About Priority Sector Lending (PSL) It refers to the mandatory lending targets set by the Reserve Bank of India (RBI) for banks and financial institutions to ensure that certain sectors of the economy receive adequate credit&hellip; <a class=\"more-link\" href=\"https:\/\/forumias.com\/blog\/rbi-lowers-priority-sector-lending-target-for-small-finance-banks\/\">Continue reading <span class=\"screen-reader-text\">RBI lowers priority sector lending target for Small Finance Banks<\/span><\/a><\/p>\n","protected":false},"author":10393,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"jetpack_post_was_ever_published":false,"footnotes":""},"categories":[1566,3127,12039],"tags":[11872],"class_list":["post-341411","post","type-post","status-publish","format-standard","hentry","category-daily-factly-articles","category-economy","category-knolls","tag-9pm-daily-factly","entry"],"jetpack_featured_media_url":"","views":"","jetpack_sharing_enabled":true,"_links":{"self":[{"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/posts\/341411","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/users\/10393"}],"replies":[{"embeddable":true,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/comments?post=341411"}],"version-history":[{"count":0,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/posts\/341411\/revisions"}],"wp:attachment":[{"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/media?parent=341411"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/categories?post=341411"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/tags?post=341411"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}