Syllabus: GS 3/Economy
In News
- The Reserve Bank of India (RBI) has relaxed priority sector lending (PSL) norms for Small Finance Banks (SFBs).
| Do you know? – Priority sector lending (PSL) is an RBI-mandated policy requiring banks to allocate a fixed portion of their loans to key sectors that face credit shortages but are crucial for inclusive economic growth. – It comprises loans to agriculture, MSMEs, export credit, education, housing, social infrastructure, renewable energy, weaker sections and other segments. 1. In March 2025, the RBI had issued revised PSL guidelines for banks, enhancing limits for loans such as housing and education, even as the PSL target for urban cooperative banks (UCBs) was brought down from 75 per cent to 60 per cent. |
Small Finance Banks (SFBs)
- About: They are operational under the regulation of the RBI in India, under the purview of the apex bank’s Banking Ombudsman Scheme, 2006, as amended from time to time.
- SFBs are registered as public limited companies under the Companies Act, 2013 and governed by Banking Regulations Act, 1949; RBI Act, 1934.
- They are subject to RBI’s prudential norms for commercial banks, including CRR and SLR.
- Objectives: SFBs aim to provide savings vehicles and credit to underserved sectors like small businesses, farmers, micro-industries, and the unorganized sector through cost-effective, technology-driven operations.
- Eligibility: Eligible promoters include resident individuals with 10 years of banking/finance experience, resident-owned companies/societies, and existing NBFCs, MFIs, and LABs. Promoters must have a strong track record (5+ years).
- Scope: Small Finance Banks offer basic banking services such as Savings Accounts, Current Accounts, Fixed Deposits, Recurring Deposits, Loans, etc.
- Capital Requirements: Minimum paid-up equity capital is INR 100 crore, with promoters contributing at least 40% initially (reducing to 26% within 12 years). Foreign shareholding follows the FDI policy for private sector banks.
Key Changes announced by RBI
- PSL loans target for SFBs has been lowered to 60 per cent of their loans from 75 per cent earlier from the current financial year.
- The additional component (35 per cent) of PSL will be reduced to 20 per cent, thereby making the overall PSL target as 60 per cent of ANBC (adjusted net bank credit) or Credit Equivalent of Off-Balance Sheet Exposures (CEOBE), whichever is higher from financial year 2025-26 onwards.
- SFBs will continue to allocate 40 per cent of their ANBC or CEOBE, whichever is higher, to different sub-sectors under PSL as per the extant PSL prescriptions, while the balance 20 per cent can be allocated to any one or more sub-sectors under the PSL where the bank has competitive advantage.
Source: BS
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