The Reserve Bank of India (“RBI”), in exercise of the powers conferred under Section 22(1) of the Banking Regulation Act, 1949, vide Notification No. RBI/2025-26/61,[1] dated June 20, 2025, has revised the Priority Sector Lending (“PSL”) requirements for Small Finance Banks (“SFBs”) with effect from FY 2025–26.
Prior to the issuance of this Circular, the SFBs were mandated to allocate 75% (seventy five percent) of their Adjusted Net Bank Credit (“ANBC”) to sectors eligible under PSL, through the following RBI’s guidelines:
- ‘Guidelines for Licensing of Small Finance Banks in Private Sector’, dated November 27, 2014, and
- ‘Guidelines for On-Tap Licensing of Small Finance Banks in Private Sector’ dated December 5, 2019.
This 75% (seventy five percent) requirement was bifurcated as follows:
- 40% (forty percent) of ANBC to be mandatorily allocated across various PSL sub-sectors as per RBI’s extant guidelines, and
- 35% (thirty five percent) of ANBC to be flexibly allocated to one or more PSL sub-sectors where the SFB has a competitive advantage.
REVISED PSL ALLOCATION NORMS
(a) The overall PSL target for SFBs is being reduced from 75% (seventy five percent) to 60% (sixty percent) of ANBC or Credit Equivalent of Off-Balance Sheet Exposures (CEOBE), whichever is higher.
(b) Within the revised 60% (sixty percent) target:
- 40% (forty percent) must continue to be allocated to various sub-sectors under PSL as per existing prescriptions.
- The remaining 20% (twenty percent) can be deployed towards any PSL sub-sector(s) bassed on the SFB’s strategic or competitive advantage
[1] https://www.rbi.org.in/Scripts/NotificationUser.aspx?Id=12875&Mode=0