As per the RBI circular, the priority sector lending requirements have been reduced for small finance banks from 75% to 60% from the financial year 2026. The figure will be 60% of Adjusted Net Bank Credit or Credit Equivalent of Off Balance Sheet Exposure, whichever is higher.
Adjusted Net Bank Credit is the total loan amount given by a bank after making certain adjustments. CEOBE is the off-balance sheet exposures that help eligible foreign banks meet their priority sector lending targets in India.
PSL norms mandate banks to allocate a portion of their lending to specific sectors of the economy. Banks are required to keep 40% of PSL, while for SFBs, that figure is 75%, which has now been cut. Any shortfall is met through the purchase of priority sector lending certificates.
Brokerage firm Morgan Stanley said the RBI’s move is a structural positive as it will give SFBs greater flexibility in terms of portfolio diversification and operational ease.
Additionally, this will likely improve their potential growth run-rate over the long term.
According to Citi, the RBI move offers structural relief and operational flexibility, and the SFBs with a more diversified portfolio can now scale up the non-Priority Sector Lending portfolio.
Shares of Equitas Small Finance Bank are down over 40% from their 52-week high.
Shares of Ujjivan Small Finance Bank are trading close to their 52-week high, as are those of AU Small Finance Bank.
Shares of Jana Small Finance Bank are also trading well below their post-listing high of ₹760.
(Inputs shared by Gaurav Jawalkar)
