The Reserve Bank of India (RBI) has relaxed priority sector lending (PSL) norms for small finance banks (SFBs).
From the current financial year, PSL loans target for SFBs has been lowered to 60 per cent of their loans from 75 per cent earlier.
PSL comprises loans to agriculture, MSMEs, export credit, education, housing, social infrastructure, renewable energy, weaker sections and other segments.
The RBI said that from financial year 2025-26 onwards, the additional component (35 per cent) of PSL will be reduced to 20 per cent, thereby making the overall PSL target as 60 per cent of ANBC (adjusted net bank credit) or Credit Equivalent of Off-Balance Sheet Exposures (CEOBE), whichever is higher.
SFBs will continue to allocate 40 per cent of their ANBC or CEOBE, whichever is higher, to different sub-sectors under PSL as per the extant PSL prescriptions, while the balance 20 per cent can be allocated to any one or more sub-sectors under the PSL where the bank has competitive advantage.
In March 2025, the RBI had issued revised PSL guidelines for banks, enhancing limits for loans such as housing and education, even as the PSL target for urban cooperative banks (UCBs) was brought down from 75 per cent to 60 per cent.
The revised guidelines, which is expected to facilitate better targeting of bank credit to the priority sectors of the economy, will be effective from April 1, 2025, the RBI then said.