RBI eases priority lending norms for SFBs, unlocks Rs 41,000 cr for low-risk sectors
The number equals about 15% of advances of small finance banks' balance sheets as on March 31, 2025, according to estimates by CareEdge. 'The ability to redeploy this capital into higher-yielding or lower-risk segments such as secured retail, MSME, or housing finance offers significant upside for SFBs,' the rating agency said in a report Tuesday.
The report added that the regulatory shift comes at a time when the gross non-performing Assets (GNPA) for small finance banks increased to 4.35% as of March 31, 2025, compared to 3.50% a year earlier. The rise was primarily driven by SFBs with a higher concentration in microfinance lending. 'In this context, the revised norms offer relief, allowing SFBs to rebalance their portfolios, mitigate concentration risk, and chart a more sustainable growth path.'CARE also said that a lower PSL requirement would create opportunities for SFBs to sell Priority Sector Lending Certificates (PSLCs) or offload excess PSL exposure to other market participants. However, since the PSLC premium is currently low, this change's immediate impact on profitability may be limited in the short term.According to Kotak Institutional Equities, the central bank's relaxation does not solve the PSL compliance challenge for the small and marginal farmers (SMF) sub-sector, where the requirement stays unchanged at 10% of ANBC.
This sub-segment is the most attractive with PSLC commissions in the range of 1.5-2.0% historically. 'In the near term, the relaxation will likely free up additional PSL in other subsectors (where PSLC commissions are much lower) for SFBs to earn modestly higher commissions until the share of PSL assets is in surplus,' the brokerage house said.The banking regulator on Friday lowered SFBs'' priority sector lending target to 60% of adjusted net bank credit (ANBC) or credit equivalent of off-balance sheet exposures (CEOBE), whichever is higher, from 75% earlier. The SFB shall continue to allocate 40% of ANBC or CEOBE to different sub-sectors under the priority sector, while the balance 20% can be allocated to any one or more sub-sectors where the bank has a competitive advantage.
Hashtags
Try Our AI Features
Explore what Daily8 AI can do for you:
Comments
No comments yet...
Related Articles
&w=3840&q=100)
Business Standard
14 minutes ago
- Business Standard
IndusInd Bank to raise Rs 30k cr; promoters get board nomination nod
Private sector lender IndusInd Bank on Wednesday said its board of directors has approved a proposal to raise Rs 30,000 crore through a combination of debt and equity. Additionally, the bank's board has allowed the promoters to nominate up to two directors on the board, subject to approval from the Reserve Bank of India (RBI) and shareholders. In an exchange notification, the bank said the board, with RBI approval, has cleared amendments to the Articles of Association empowering the promoters to collectively nominate up to two directors on the board, classified as non-executive non-independent directors, subject to shareholder approval. Currently, the promoters have no representation on the bank's board. The board comprises non-executive directors only, as both the managing director and chief executive officer (MD & CEO) and the deputy CEO resigned in April, taking responsibility for accounting lapses. The bank's promoter, Ashok Hinduja, had said in March this year—when the bank disclosed discrepancies in its derivative portfolio leading to losses of over Rs 2,000 crore—that the promoters were ready to inject capital if required. However, with the bank's capital adequacy at comfortable levels, he stressed there was no immediate need for additional capital and that the bank had not sought fresh funds. As of March 2025, IndusInd Bank reported a Capital to Risk (Weighted) Assets Ratio (CRAR) of 16.24 per cent, with Tier I at 15.10 per cent and Tier II at 1.14 per cent. In the January–March quarter (Q4FY25), the bank reported a net loss of Rs 2,329 crore after substantially increasing provisions and reversing incorrectly booked revenue and income related to discrepancies in its derivatives and microfinance portfolios. The embattled lender saw its MD & CEO Sumant Kathpalia and Deputy CEO Arun Khurana step down in April, taking responsibility for a Rs 1,960 crore loss on the derivatives portfolio. The board submitted a shortlist of three candidates to the RBI on June 30 and is awaiting approval to appoint a new MD & CEO. Meanwhile, the board approved raising Rs 20,000 crore through debt securities, either via private placement or in permitted foreign currencies, subject to approvals. An additional Rs 10,000 crore will be raised to augment capital through the issuance or placement of securities including American Depository Receipts (ADR), Global Depository Receipts (GDR), Qualified Institutional Placement (QIP), and others. Separately, the bank informed the exchanges that Jayant Deshmukh has ceased to be a non-executive independent director of the bank with effect from the close of working hours on Wednesday, July 23, 2025, upon completion of his tenure.
&w=3840&q=100)
Business Standard
14 minutes ago
- Business Standard
Net FDI plunges to $40 million in May 2025 as outward flows accelerate
The net foreign direct investment (FDI) in India -- which is the difference between gross inflows and outflows-- declined sharply by 98.2 per cent to $ 40 million in May 2025 from $ 2.2 billion in May 2024, on higher repatriation/divestment and outward investments from the country, Reserve Bank of India (RBI) data showed. For May 2025, repatriation\divestment stood at $5.0 billion, up from $ 4.1 billion in May 2024. In May 2025, outward FDI was $ 2.1 billion, higher than $ 1.8 billion in May 2024. As for May 2025, gross FDI was $ 7.2 billion, lower than $ 8.1 billion in May 2024. According to the State of the Economy article in the RBI bulletin (July 2025), Singapore, Mauritius, the UAE and the US together accounted for more than three-fourths of total FDI inflows in May 2025, with manufacturing, financial and computer services being the top recipient sectors. Cumulative net FDI in the first two months of the current financial year (FY26), was flat at $3.9 billion in April-May 2025 as compared to $ 4.0 billion in April-May 2024. The gross inward FDI increased to $ 15.91 billion in April-May 2025, from $15.2 billion in April-May 2024. The scale of capital repatriation/divestment moderated to $ 6.7 billion in April-May 2025 from $ 8.1 billion in the same period last year. The RBI has argued that the rise in repatriation is a sign of a mature market where foreign investors can enter and exit smoothly. The outward FDI from India moved up sharply to $ 5.3 billion in April-May 2025 from $ 3.1 billion in April-May 2024. Top sectors for outward FDI included transport, storage and communication services, manufacturing, and financial, insurance and business services, and the major destinations included Mauritius, the US and the UAE, RBI said.
Business Standard
25 minutes ago
- Business Standard
RBI says domestic economic activity holding up
Reserve Bank Of India (RBI) stated in its latest monthly bulletin that domestic economic activity held up in June, with high-frequency indicators pointing to improving prospects of kharif agricultural season and continuation of strong momentum in the services sector. Growth in rural demand remained resilient and was accompanied by a recovery in urban economic activity. Amidst global economic uncertainties, the front-loading of spending by the central and state governments, with a focus on higher capex, is helping to offset some slowdown witnessed in private capex expenditure. Indias merchandise trade deficit narrowed in June 2025, due to contraction in both oil and non-oil trade deficit. Headline consumer price inflation or CPI inflation remained below the 4 per cent target for the fifth consecutive month in June, to fall to the second lowest inflation reading in the current CPI series.
