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Corporate Laws Central Ministry of Finance Reserve Bank of India Act, 1934

Review of Priority Sector Lending Norms - Small Finance Banks

20-Jun-2025 | RBI/2025-26/61 DOR.LIC.REC.36/16.13.218/2025-26

Reserve Bank of India (RBI) has issued a circular regarding the review of priority sector lending (PSL) norms for Small Finance Banks (SFBs), effective from June 20, 2025. According to the circular, starting from the financial year 2025-26, the additional component of PSL, previously set at 35 percent, will be reduced to 20 percent. This adjustment will make the overall PSL target 60 percent of either the Adjusted Net Bank Credit (ANBC) or the Credit Equivalent of Off-Balance Sheet Exposures (CEOBE), whichever is higher. SFBs are required to allocate 40 percent of their ANBC or CEOBE to various sub-sectors under PSL as per the existing PSL guidelines, while the remaining 20 percent can be allocated to any one or more sub-sectors under PSL where the bank possesses a competitive advantage. Previously, the Guidelines for Licensing of Small Finance Banks in the Private Sector, dated November 27, 2014, and the Guidelines for on-tap Licensing of Small Finance Banks in the Private Sector, issued by the Reserve Bank on December 5, 2019, established that a small finance bank must extend 75 percent of its ANBC to sectors eligible for classification as priority sector lending by the Reserve Bank. Furthermore, while 40 percent of its ANBC should be allocated to various sub-sectors under PSL, the bank may allocate the remaining 35 percent to one or more sub-sectors under PSL where it has a competitive advantage. For more detailed information, please refer to the original document.

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