The Reserve Bank of India has revised priority-sector-lending requirements for small finance banks, reducing the overall target from 75% to 60% of adjusted net bank credit or credit equivalent of off-balance sheet exposures, whichever is higher.
These revised guidelines will come into effect from the next financial year, the central bank said in a press release on Friday.
Under the new rules, small finance banks must allocate 40% of their credit to core priority sectors as per existing guidelines, while the flexible component — where banks can lend to sectors of their choice — has been cut from 35% to 20%.
This move aims to streamline lending practices and ensure a sharper focus on priority sectors.
Priority sector lending is an RBI-mandated practice, where banks must allocate a certain portion of their lending to sectors that are critical for the country's economic and social development, but which often struggle to access credit. These sectors include agriculture, micro, small and medium enterprises, education, affordable housing, renewable energy, export credit and lending to weaker sections of society.
The PSL scheme aims to ensure inclusive growth by channeling credit to areas that support employment, rural development and social welfare. The revised norms are expected to impact lending strategies across small finance banks from the next financial year.
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