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Economic Times
24-06-2025
- Business
- Economic Times
RBI eases priority lending norms for SFBs, unlocks Rs 41,000 cr for low-risk sectors
The Reserve Bank of India's move to lower priority sector lending target for small finance banks (SFBs) is expected to free-up around Rs41,000 crore that could be re-deployed into lending to low-risk segments like housing. 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 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 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.
Time of India
24-06-2025
- Business
- Time of India
RBI eases priority lending norms for SFBs, unlocks Rs 41,000 cr for low-risk sectors
Live Events (You can now subscribe to our (You can now subscribe to our Economic Times WhatsApp channel The Reserve Bank of India's move to lower priority sector lending target for small finance banks (SFBs) is expected to free-up around Rs41,000 crore that could be re-deployed into lending to low-risk segments like 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 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 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 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 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.
Time of India
23-06-2025
- Business
- Time of India
Ujjivan, ESAF, Equitas, and other small finance bank shares rally up to 6% as RBI eases priority sector lending norms
Shares of small finance banks (SFBs) rallied up to 6% on Monday after the Reserve Bank of India (RBI) eased priority sector lending (PSL) norms, reducing the mandatory requirement by 15 percentage points. Among the gainers, ESAF SFB surged 6% to Rs 33.16, followed by Ujjivan SFB , which rose 4% to Rs 50.20. Utkarsh SFB climbed 4%, Equitas SFB gained 4.6%, Suryoday SFB advanced 2%, Jana SFB rose 2.7%, and AU SFB edged up 1%. Also Read: 11 Nifty mid & smallcap stocks that can rally 40-90% over the next 12 months Currently, small finance banks (SFBs) are required to lend 75% of their Adjusted Net Bank Credit (ANBC) or Credit Equivalent of Off-Balance Sheet Exposures (CEOBE)—whichever is higher—to priority sectors such as agriculture, MSMEs, and education. Under the revised norms, this requirement will be reduced to 60% starting from FY26. From FY26 onward, SFBs will continue to allocate 40% of ANBC or CEOBE to specific sub-sectors under the Priority Sector Lending (PSL) framework, as per existing guidelines. The remaining 20% can be deployed across any PSL sub-sectors where the bank has a competitive edge. Live Events Also Read: Is the grey market premium misleading? Decoding the valuation gap in HDB Financial's IPO In March 2025, the RBI revised the Priority Sector Lending (PSL) guidelines to expand loan limits for categories such as housing and education, and similarly reduced the PSL target for urban cooperative banks from 75% to 60%. According to the RBI, these changes aim to provide greater operational flexibility to small finance banks while ensuring the continued flow of credit to critical sectors. The revised PSL norms will come into effect from April 1, 2025. Also Read: $2.4 trillion worth of gold! India's household hoard is 6x Pakistan's economy ( Disclaimer : Recommendations, suggestions, views, and opinions given by the experts are their own. These do not represent the views of The Economic Times)
Business Upturn
23-06-2025
- Business
- Business Upturn
PSL relief offers structural flexibility for SFBs, says Citi
By News Desk Published on June 23, 2025, 08:28 IST Citi has termed the Reserve Bank of India's (RBI) decision to ease priority sector lending (PSL) norms for Small Finance Banks (SFBs) as a structural relief, noting that the revised framework will support greater portfolio diversification and long-term business scalability. Effective FY26, the PSL target for SFBs has been reduced to 60% of Adjusted Net Bank Credit (ANBC) or Credit Equivalent of Off-Balance Sheet Exposure (CEOBE), whichever is higher. Under the revised structure, 40% of ANBC must still follow existing PSL norms, while the remaining 20% can be deployed in sub-sectors that offer more strategic advantage. According to Citi, most SFBs reported priority advances exceeding 75% of their previous year's lending, with the exception of Suryoday. A majority of these banks have historically leaned on the Microfinance (MFI) segment to comply with PSL obligations. Citi believes the regulatory change now allows diversified SFBs to expand their non-PSL loan books, helping them enhance asset mix and profitability. The flexibility to allocate a portion of credit to non-PSL categories will aid in mitigating concentration risks, particularly in MFI-heavy portfolios. The move is expected to strengthen portfolio quality and open up new growth avenues for better-capitalised and diversified SFBs. Disclaimer: The views expressed in this article are based on brokerage reports and do not represent the views of this publication. Investors are advised to consult certified financial advisors before making any investment decisions. Ahmedabad Plane Crash News desk at
Business Standard
21-06-2025
- Business
- Business Standard
RBI reduces priority sector lending requirement for small finance banks
PSL requirement will reduce to 60% from 75% earlier The Reserve Bank of India (RBI) has reduced the mandatory priority sector lending requirement for small finance banks (SFBs) to 60% from financial year 2025-26 onwards as against existing requirement of 75%. As per the Guidelines for Licensing of Small Finance Banks in Private Sector dated 27 November 2014 a SFB is required to extend 75% of its Adjusted Net Bank Credit (ANBC) to the sectors eligible for classification as priority sector lending (PSL). Further, while 40% of its ANBC should be allocated to different sub-sectors under PSL, the SFB can allocate the balance 35% to any one or more sub-sectors where it has competitive advantage. On a review, it has been decided that financial year 2025-26 onwards, the additional component (35%) of PSL shall be reduced to 20%, thereby making the overall PSL target as 60% of ANBC or Credit Equivalent of Off-Balance Sheet Exposures (CEOBE), whichever is higher. The SFB shall continue to allocate 40% of its ANBC or CEOBE, whichever is higher, to different sub-sectors under PSL as per the extant PSL prescriptions, while the balance 20% shall be allocated to any one or more sub-sectors under the PSL where the bank has competitive advantage.
