Reserve Bank of India (RBI) has revised the Priority Sector Lending (PSL) norms for Small Finance Banks (SFBs), effective from the financial year 2025-26. Previously, SFBs were required to allocate 75% of their Adjusted Net Bank Credit (ANBC) or Credit Equivalent of Off-Balance Sheet Exposures (CEOBE) to priority sectors. This included a mandatory 40% to specific PSL sub-sectors and a flexible 35% to sub-sectors where the bank had a competitive advantage. The new directive reduces the overall PSL target to 60% of ANBC or CEOBE, whichever is higher. Under this revised structure, SFBs will continue to allocate 40% to the mandated PSL sub-sectors, but the flexible component, which can be directed to one or more preferred sub-sectors, will now be reduced to 20%. These instructions are issued under the authority granted to the RBI by Section 22 (1) of the Banking Regulation Act, 1949.
Reserve Bank of India
RBI/2025-26/61
DOR.LIC.REC.36/16.13.218/2025-26 Dated: June 20, 2025
All Small Finance Banks
Madam/ Dear Sir,
Review of Priority Sector Lending norms – Small Finance Banks
Please refer to the ‘Guidelines for Licensing of Small Finance Banks in Private Sector’ dated November 27, 2014 and the ‘Guidelines for ‘on-tap’ Licensing of Small Finance Banks in Private Sector’ released by Reserve Bank on December 5, 2019. In terms of paragraph II (9) of the aforesaid Licensing Guidelines, a small finance bank (SFB) is required to extend 75 per cent of its Adjusted Net Bank Credit (ANBC) to the sectors eligible for classification as priority sector lending (PSL) by the Reserve Bank. Further, while 40 per cent of its ANBC should be allocated to different sub-sectors under PSL as per the extant PSL prescriptions, the bank can allocate the balance 35 per cent to any one or more sub-sectors under the PSL where it has competitive advantage.
Revised provisions
2. On a review, it has been decided that financial year 2025-26 onwards, the additional component (35 per cent) of PSL shall be reduced to 20 per cent, thereby making the overall PSL target as 60 per cent of ANBC or Credit Equivalent of Off-Balance Sheet Exposures (CEOBE), whichever is higher. The SFB shall continue to allocate 40 per cent of its ANBC or CEOBE, whichever is higher, to different sub-sectors under PSL as per the extant PSL prescriptions, while the balance 20 per cent shall be allocated to any one or more sub-sectors under the PSL where the bank has competitive advantage.
3. These instructions are issued in exercise of the powers conferred on the Reserve Bank of India under Section 22 (1) of the Banking Regulation Act, 1949.
Yours faithfully,
(Manoranjan Padhy)
Chief General Manager
