The Reserve Bank of India (RBI) has lowered the mandatory Priority Sector Lending (PSL) target for Small Finance Banks (SFBs) from 75% to 60% of Adjusted Net Bank Credit (ANBC), effective from FY 2025–26. The move aims to enhance lending flexibility while still promoting financial inclusion.

Key Points:

1. Starting FY 2025–26, SFBs will be required to allocate 60% of their ANBC or Credit Equivalent of Off-Balance Sheet Exposure (CEOBE) to priority sectors, down from the earlier mandate of 75%.
2. The flexible portion of PSL allocation has also been reduced from 35% to 20%, while 40% will still be earmarked for core sectors like agriculture, MSMEs, and housing.
3. The revision is expected to free up approximately Rs.41,000 crore for SFBs, allowing them to redirect credit to less risky and more profitable segments.
4. Following the announcement, shares of key SFBs like Ujjivan, Equitas, and ESAF rallied up to 6%, reflecting positive investor sentiment.
5. While offering operational relief to SFBs, the new norms ensure that a significant share of credit continues to reach underserved sectors and promote financial inclusion.