Latest news with #SFBs
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Business Standard
24-06-2025
- Business
- Business Standard
PSL norm easing provides limited room for SFBs to make gains: CareEdge
The Reserve Bank of India's move to ease priority sector lending (PSL) targets may free up around Rs 41,000 crore for Small Finance Banks (SFBs). However, these banks may have limited scope to realise short-term gains by offloading excess exposure due to the low premium for such certificates, according to CareEdge Ratings. The banking regulator has reduced the overall PSL target for SFBs from 75 per cent to 60 per cent, effective from FY26, marking a significant shift in their lending obligations. In a statement, CareEdge said the lower PSL requirement would create opportunities for SFBs to sell priority sector lending certificates (PSLCs) or offload excess exposure to other market participants. However, the immediate impact on profitability may be muted. The revised 60 per cent target is seen as more attainable. It reduces the regulatory burden, particularly during periods of rapid growth or economic stress, easing compliance pressures and lowering the risk of penalties for falling short of mandated lending. Sanjay Agarwal, senior director at CareEdge Ratings, said the revised PSL guidelines represent a strategic inflexion point for Small Finance Banks. 'By reducing the overall PSL target while maintaining operational flexibility, the RBI has created a more balanced and practical regulatory framework,' he said. The RBI's easing of PSL norms for SFBs follows two recent regulatory developments in the priority sector space. First, in March 2025, the RBI expanded the range of exposures eligible for PSL classification. Second, in June 2025, it reduced the qualifying asset threshold for non-banking finance companies working as microfinance institutions (NBFC-MFIs) from 75 per cent to 60 per cent.
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
24-06-2025
- Business
- Time of India
RBI reduces priority sector lending target for SFBs
Kolkata: Small finance banks received a fresh lease of life with the Reserve Bank of India lowering their priority sector lending target, firing up the share prices of the listed ones on Monday. The relaxation will allow them, especially those with higher share of unsecured loans , to operate with greater flexibility, optimising capital allocation towards secured and high-value loans, which in turn will help them improve asset quality and boost profitability, the heads of these lending institutions said. They expressed optimism that the regulatory change would enhance the attractiveness of small finance banks (SFBs) for investors and help them raise fresh capital. The share price of Equitas Small Finance Bank , jumped 4.5% to close at ₹67.40 apiece on Monday on the BSE, even as the Sensex fell 0.66% in reaction to the US attack on Iranian nuclear facilities. ESAF Small Finance Bank 's share price rose 3.2% to ₹32.2, while Jana SFB saw its price go up 3.9% to ₹506.1. "The new regulation helps improve asset quality, optimise capital allocation, and enhance profitability-while continuing to serve priority sectors meaningfully," Capital Small Finance Bank managing director Sarvjit Singh Samra told ET. 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. Agencies 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. "This shift is expected to strengthen asset quality and enhance the overall stability of SFBs' loan portfolios," ESAF Small Finance Bank managing director K Paul Thomas told ET. ESAF, with half of its loan portfolio of ₹19,643 crore being unsecured, had its gross non-performing assets ratio at 6.9% at the end of March. Suryoday SFB's gross NPA was 7.2% at the end of last fiscal. There are 11 small finance banks with a total loan portfolio of ₹2.79 lakh crore. Paul Thomas said that earlier SFBs had to extend a significant share of unsecured loans and other small-ticket priority loans, which could carry higher credit risk. "With a reduced PSL requirement, SFBs can moderate their exposure to unsecured lending and focus more on secured advances, such as MSME loans, affordable housing, gold loans, and other collateral-backed products, while still fulfilling their core objectives," he said. The immediate impact would be release of excess priority sector loans that these banks carry in their balance sheet. This will lead to a higher sale of priority sector lending certificates to other banks. "This may help in increased income though marginal through PSLC sale," Suryoday SFB MD R Baskar Babu said. The new norm is viewed as a strong enabler for SFBs with universal banking aspirations. "As we work toward achieving 60% priority sector lending compliance, the revised norms open up space for us to build a more balanced and diversified asset mix-a critical enabler for universal banking operations," Jana managing director Ajay Kanwal said.
Business Standard
23-06-2025
- Automotive
- Business Standard
RBI relaxes PSL norms to help SFBs de-risk, diversify loan portfolio
The Reserve Bank of India's (RBI's) relaxation of priority sector lending (PSL) norms for small finance banks (SFBs) — reducing the overall PSL target from 75 per cent to 60 per cent — will provide operational flexibility to these lenders, enabling them to diversify and derisk their loan books by venturing into segments they had previously stayed away from. This regulatory dispensation is expected to free up around ₹40,000 crore for SFBs, which can now be deployed in lower-rated risk, secured assets, said industry players and experts. With the relaxation, SFBs can channel funds into segments such as loans against property (LAP), personal loans, vehicle loans, and loans against mutual funds, they added. According to RBI regulations, an SFB was required to extend 75 per cent of its adjusted net bank credit (ANBC) to sectors eligible for classification as PSL. While 40 per cent of the ANBC was to be allocated to different sub-sectors under PSL in line with the extant PSL prescriptions, SFBs were allowed to allocate the balance of 35 per cent to one or more sub-sectors where they have a competitive advantage. Now, the RBI has said that the additional component (35 per cent) of PSL will be reduced to 20 per cent, making the overall PSL target 60 per cent of ANBC or the credit equivalent of off-balance sheet exposures, whichever is higher. According to Ajay Kanwal, managing director (MD) and chief executive officer (CEO) of Jana SFB, the RBI's relaxation of PSL norms is likely to benefit those banks that may have felt constrained by the earlier requirements. With greater flexibility, these banks could now see an opportunity to diversify their loan books. 'The eased norms may encourage more non-banking financial companies to consider applying for an SFB licence. That said, we do not foresee any immediate impact on our profit and loss (P&L) from this regulatory change,' he said. Some of the areas where SFBs can now beef up lending are automobile loans, LAP, loans against shares, and personal loans. While diversification may not come into play in the current financial year (2025–26/FY26), going forward, the banks can now plan for the next two to three years on how they will diversify their business with the extra room that the RBI has provided, said bankers. According to R Baskar Babu, MD and CEO of Suryoday SFB, the diversification in loan books will pave the way for SFBs to prepare themselves for converting into universal banks. While diversification in the loan book will not necessarily mean higher margins, it would certainly provide comfort on asset quality, as most SFBs have a sizeable microfinance portfolio that gets impacted due to various reasons at regular intervals. The regulator has already announced a norm for SFBs that can be eligible to voluntarily convert into universal banks. Currently, there are 11 SFBs in the country, and three of them have applied for conversion. 'This is the vision the RBI had while issuing the differentiated SFB banking licences. This will help add new asset classes and new geographies for the SFBs,' said Inderjit Camotra, MD and CEO of Unity SFB. 'It will enable SFBs to deploy this 15 per cent towards diversifying their present base,' he said. The new norms, which come into effect from the current financial year (FY26), would aid SFBs in earning profit by selling priority sector lending certificates (PSLCs) in the small and marginal farmer segment to other banks that fall short of the target. Under the 40 per cent mandatory PSL target, banks are required to allocate funds to sectors such as agriculture, small and marginal farmers, non-corporate individual farmers, microenterprises, and weaker sections. While most of these segments do not yield sizeable profit through the sale of PSLCs, the small and marginal farmer segment offers some profitability, which SFBs can now strategically leverage to earn extra income. 'The relaxation in PSL norms for SFBs by the RBI provides these banks with greater operational flexibility to diversify their loan books. According to our estimates, around 15 per cent — or over ₹40,000 crore — could be freed up for deployment in lower-rated risk assets, potentially improving their cost of funds. However, this move is unlikely to have a major impact on their P&L in the near term,' said Sanjay Agarwal, senior director, CareEdge.
