The Reserve Bank of India (RBI) has eased priority sector lending norms for small finance banks, lowering their mandatory target by 15 percentage points.

From the current financial year, small finance banks are required to extend 60% of their total loans to the priority sector, down from the earlier mandate of 75%.

The priority sector lending includes loans to segments such as agriculture and small businesses.

The RBI said that from financial year 2025-26, the additional component (35%) of priority sector lending (PSL)  shall be reduced to 20%. This would make the overall PSL target as 60% of adjusted net bank credit (ANBC) or credit equivalent of off-balance sheet exposures (CEOBE), whichever is higher. 

Small Finance Banks will continue to allocate 40% of their ANBC or CEOBE, whichever is higher, to different sub-sectors under PSL as per the extant PSL prescriptions. The balance 20% shall be allocated to any one or more sub-sectors under the PSL where the bank has competitive advantage, the RBI said.