RBI reduces priority sector lending requirement for small finance banks
The Reserve Bank of India (RBI) has reduced the mandatory priority sector lending requirement for small finance banks (SFBs) to 60% from financial year 2025-26 onwards as against existing requirement of 75%.
As per the Guidelines for Licensing of Small Finance Banks in Private Sector dated 27 November 2014 a SFB is required to extend 75% of its Adjusted Net Bank Credit (ANBC) to the sectors eligible for classification as priority sector lending (PSL). Further, while 40% of its ANBC should be allocated to different sub-sectors under PSL, the SFB can allocate the balance 35% to any one or more sub-sectors where it has competitive advantage.
On a review, it has been decided that financial year 2025-26 onwards, the additional component (35%) of PSL shall be reduced to 20%, thereby making the overall PSL target as 60% of ANBC or Credit Equivalent of Off-Balance Sheet Exposures (CEOBE), whichever is higher.
The SFB shall continue to allocate 40% of its ANBC or CEOBE, whichever is higher, to different sub-sectors under PSL as per the extant PSL prescriptions, while the balance 20% shall be allocated to any one or more sub-sectors under the PSL where the bank has competitive advantage.
Try Our AI Features
Explore what Daily8 AI can do for you:
Comments
No comments yet...
Related Articles
Mint
30 minutes ago
- Mint
Can you get more than one personal loan at the same time?
A few months back, you took a 2-year personal loan to purchase a laptop for your work-related assignments. Now there is a medical emergency in the family, for which you need financial assistance. You are wondering if you can take a second personal loan? In this article, we will understand whether an individual can take multiple personal loans, what banks check before giving multiple personal loans, and how an individual should manage multiple personal loans. The Reserve Bank of India (RBI) has not issued any guidelines on limiting the number of personal loans an individual can take. So, banks are free to frame their policy on how many personal loans an individual can take. Banks usually don't have a policy on limiting the number of personal loans an individual can take. Banks look at the borrower's repayment capacity while deciding how much an individual can borrow. So, for the banks, what matters more is the personal loan amount that an individual borrows, and not the number of loans across which the borrowed amount is distributed. Also, banks consider the total amount an individual can borrow across all types of loans, and not just personal loans. For example, the credit team evaluates a borrower and arrives at a loan eligibility amount of Rs. 5 lakhs. The borrower can take the Rs. 5 lakhs in a single or multiple personal loans, provided they don't take any additional personal loan(s) from another bank/NBFC during the same time. While evaluating a borrower's first or subsequent personal loan application, the following are some factors that a bank considers. Debt-to-income ratio: The debt-to-income (DTI) ratio measures the percentage of an individual's monthly income going towards paying debt obligations. For example, Rajesh's monthly income is Rs. 50,000, from which he uses Rs. 10,000 to pay loan EMIs. In this case, Rajesh's DTI ratio is 20%. A DTI ratio of 35% or lower is considered good by most banks for approving a personal loan application, provided the other eligibility criteria are fulfilled. Some banks may consider a DTI ratio between 35% and 50% on a case-to-case basis. For such personal loan applications, the bank may ask the applicant to get a co-applicant, co-signer, or guarantor. The bank may ask the borrower to reduce the personal loan amount and/or go for a higher tenure so that the EMI amount can be reduced to accommodate it within an acceptable DTI ratio. If the borrower already has an existing loan(s), the bank will calculate the DTI ratio by adding the EMI for the new loan application along with the existing EMIs. After considering the EMI for the new loan application, if the DTI is within acceptable limits, the bank will approve the loan, provided all eligibility criteria are met. So, the borrower can take multiple personal loans. Credit score and report: Personal loans are unsecured loans. In the absence of collateral, the borrower's repayment capacity and past repayment track record matter a lot for the bank. The repayment capacity can be evaluated from the borrower's income and how it is being used. The past repayment track record can be evaluated from the credit score and report. Banks usually consider a credit score of 750 and above to be decent to approve the personal loan application, provided other eligibility criteria are met. The credit report provides the details of the existing loans and whether they are being serviced on time. It also provides details of loan(s) that have been closed. If an existing loan repayment has been delayed, the credit report provides the details of the overdue amount, the days past due (DPD), the date of last payment, etc. The credit report also provides details of whether any loan amount has been settled or written off. While evaluating the current loan application, the bank will go through the borrower's credit report to check the existing loans. Inspite of having multiple existing loans running, if the borrower fulfils the eligibility criteria, the bank will go ahead and approve the personal loan application. So, a borrower can get multiple personal loans. All the borrower needs to do is fulfil the eligibility criteria and prove the repayment capacity with credibility. If you have multiple personal loans or a mix of personal and other loans, make sure you manage them properly. You may opt for the auto-debit option for EMI payment. With this, you will not need to remember multiple EMI payment dates. Once all the EMIs are paid for a particular month, the surplus amount may be used for partial prepayment or foreclosure of loans. You may use the snowball method that focuses on repaying the smallest loan first and then proceeding to the next smallest. The avalanche method focuses on repaying the loan with the highest interest rate first and then proceeding to the one with the next highest interest rate. Before making a partial prepayment or foreclosure, check the fees charged by the bank for it. Whether you should go for multiple personal loans depends on how urgently you require the money, your repayment capacity, and other factors. If there is a medical emergency, you must go for an additional personal loan even if you have an existing ongoing personal loan(s). However, if you are planning to take a personal loan to enjoy a family vacation, you may consider your financial situation. If there are existing personal loans running, you may wait till one or multiple loans get repaid so that free cash flow is available to accommodate the new loan's EMI easily. To conclude, there is no restriction on the number of personal loans you can take. However, ensure your DTI ratio is in a comfortable range so you can easily service the EMIs for all personal loans. Any delays or defaults in EMI payments will spoil your credit score and report, making it difficult for you to get any new loans in the future. So, you may take multiple personal loans if required. However, use them responsibly and repay them on time. Gopal Gidwani is a freelance personal finance content writer with 15+ years of experience. He can be reached at LinkedIn. Disclaimer: Mint has a tie-up with fintechs for providing credit; you will need to share your information if you apply. These tie-ups do not influence our editorial content. This article only intends to educate and spread awareness about credit needs like loans, credit cards, and credit scores. Mint does not promote or encourage taking credit, as it comes with a set of risks such as high interest rates, hidden charges, etc. We advise investors to discuss with certified experts before taking any credit. For all personal finance updates, visit here.
Business Standard
an hour ago
- Business Standard
INR likely to limit gains amid dollar rebound
The Indian rupee could limit gains in opening trades on Wednesday tracking good rebound in dollar overseas. Yesterday, rupee appreciated 40 paise to close at 86.99 against the US dollar, supported by optimism over GST restructuring and positive domestic equity markets. Indian shares rose modestly on Tuesday, extending gains from the previous session amid hopes that Prime Minister Modi's recent GST reforms will potentially ease inflation and pave the way for further rate cuts by the Reserve Bank of India (RBI). Investor sentiment was also underpinned by renewed diplomatic efforts aimed at ending the war in Ukraine and improving Sino-India relations amidst global uncertainty. The benchmark BSE Sensex rose 370.64 points, or 0.46 percent, to 81,644.39 while the broader NSE Nifty index closed up 103.70 points, or 0.42 percent, at 24,980.65.
Mint
an hour ago
- Mint
With interest rates on a decline, should retail investors opt for debt mutual funds over FDs? Experts speak
Mutual Funds: Starting in February 2025, the Reserve Bank of India (RBI) began cutting the repo rate, and in three consecutive meetings – February, April, and June - the interest rates dropped by a total of 100 basis points from 6.5 to 5.5 percent in fewer than six months. Commercial banks followed suit, and interest rates on fixed deposits (FDs) were subsequently slashed. As a result, investors now have slightly lower incentives to lock their funds in the term deposits. The alternative? Investors can consider investing in debt mutual funds such as money market funds, corporate bond funds, and liquid funds, say experts. Swapnil Aggarwal, Director of VSRK Capital, says, 'With falling interest rates on savings accounts and fixed deposits, these instruments are becoming less attractive to investors looking for both safety and returns. Under such a scenario, liquid funds and money market funds become feasible alternatives to invest in. These schemes invest in high-quality, short-term securities, which have a fair degree of safety and yet retain high liquidity. As a result, they are ideal for investors looking to park surplus funds without having to lose quick access to them.' Sridharan Sundaram, a Sebi-registered investment advisor and founder of Wealth Ladder Direct, echoes similar sentiments. 'Money market funds and liquid funds are better than investing in a fixed deposit. The chances are that bond prices will go up if the interest rates decline further,' he says. Liquid mutual funds: These mutual funds comprise debt and money market securities with a maturity of up to 91 days only. There are 39 schemes in this category with total assets under management of ₹ 5.42 lakh crore, the AMFI data shows. Money market funds: These funds comprise investment in money market instruments having a maturity of upto one year. There are 25 schemes in this category with total assets under management upto ₹ 3.37 lakh crore, as shown in the latest AMFI (Association of Mutual Funds in India) data as on 31 July 2025. 'Money market funds also provide slightly higher returns by allocating funds to short-term instruments. Both categories generally deliver better yields compared to savings accounts and even short-term FDs, making them a more efficient option for short-term financial needs. As a result, they are especially useful for maintaining emergency funds or managing temporary cash requirements without compromising on safety,' says Aggarwal. Corporate bond fund: These mutual funds refer to schemes that comprise a minimum of 80 percent investment in corporate bonds only in AA+ and above-rated corporate bonds. There are 21 schemes in this category with total assets under management of ₹ 2.05 lakh crore, reveals AMFI data. 'These three financial instruments have different features and uses. So, which one to invest in depends on your investment horizon. If your investment horizon is very short (a few days to three months) and you prioritise liquidity and safety, liquid funds are the preferred choice. If you can hold investments for a slightly longer period (three months to one year) and want somewhat higher returns, money market funds are worth considering,' says Preeti Zende, founder of Apna Dhan Financial Services. 'When an investor wants to invest funds for 2-3 years, it is better to invest in corporate bonds to earn 1-2 percent higher interest than FDs,' signs off Sridharan. Note: This story is for informational purposes only. Please speak to a SEBI-registered investment advisor before making any investment-related decision. For all personal finance updates, visit here
