RBI revises priority sector lending norms for Small Finance Banks (SFBs), giving them relief from FY 2025-26. The Reserve Bank of India has announced that the Priority Sector Lending (PSL) target for SFBs will be reduced from 75% to 60% of Adjusted Net Bank Credit (ANBC). Let’s break this down in simple terms.
What is Priority Sector Lending (PSL)?
Priority Sector Lending is a policy where banks must lend a portion of their funds to sectors crucial for India’s development. These include:
- Agriculture
- Micro and small enterprises
- Education
- Housing for the poor
- Renewable energy
- Other weaker sections
Earlier, SFBs had to lend 75% of their ANBC to these priority sectors — higher than the 40% mandate for regular commercial banks.
What Has RBI Changed Now?
Here’s the key update from RBI’s circular (RBI/2024-25/XX dated June 20, 2025):
| Particulars | Earlier Norm | Revised Norm (Effective FY 2025-26) |
|---|---|---|
| PSL Target for SFBs | 75% of ANBC | 60% of ANBC |
✅ This means SFBs will now have more freedom to diversify lending to other segments too.
Why Did RBI Revise the PSL Norms?
According to RBI’s statement:
- Level Playing Field: To align SFBs’ obligations closer to other banks.
- Growth & Sustainability: High PSL exposure often increases default risks for small banks.
- Credit Flow Flexibility: It allows SFBs to serve emerging sectors and larger borrowers too.
📜 Official Source: RBI Press Release
Impact on Small Finance Banks
Lower PSL means:
- Better risk management
- Balanced loan portfolio
- Potential boost in profitability
However, SFBs must still focus on financial inclusion to retain their core purpose.
How Will Borrowers Be Affected?
- Rural & priority sector borrowers: May see tighter loan availability.
- Non-priority sectors: Might get easier access to credit from SFBs.
- Overall, this could reduce stressed assets and strengthen small banks.
Expert Tip: Balance is Key!
While this move eases compliance, experts suggest SFBs should not abandon their focus on rural credit. A well-balanced loan book helps maintain trust and regulatory goodwill.
FAQs on Revised PSL for SFBs
✅ What is the new PSL target for SFBs?
60% of ANBC, effective from FY 2025-26.
✅ Does this affect scheduled commercial banks too?
No. The 40% PSL target for regular banks remains unchanged.
✅ Where can I read the official circular?
You can read the RBI circular here.
Summary
RBI revises priority sector lending for small finance banks by lowering the target to 60% from FY 2025-26. This change aligns SFB norms with other banks and supports better risk management.
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