India lowers priority sector lending obligation of small finance banks

It is now just 60% overall, although flexible allocation is now just 20%.

India has lowered the priority sector lending (PSL) obligation of small finance banks to 60%.

However, the portion that a small finance bank can allocate flexibly to subsectors it has a competitive advantage in has been reduced from 35% to 20%.

A small finance bank in India was previously required to extend 75% of its adjusted net bank credit (ANBC) to sectors eligible for classification as PSL by the Reserve Bank of India (RBI).  

Of this, the bank can allocate the balance 35% to any one or more subsectors flexibly, as defined by the RBI. Beginning 2025-2026 fiscal year, this has been reduced to just 20%.

Small finance banks are required to continue allocating 40% of its ANBC or its equivalent, whichever is higher, to different sub-sectors under PSL.