RBI Revises PSL Norms for SFBs, Effective from 1 April 2025

Current Context: The RBI’s revised Priority Sector Lending (PSL) norms for Small Finance Banks (SFBs), announced on June 20, 2025, are aimed at increasing flexibility while ensuring credit flows to key sectors.

Here’s a breakdown:

Overall PSL target reduced from 75% to 60% of Adjusted Net Bank Credit (ANBC) or Credit Equivalent of Off-Balance Sheet Exposures (CEOBE). This gives SFBs more leeway to diversify lending.
Of that 60%, a minimum of 40% must still go to core PSL segments like agriculture, MSMEs, and education.
The flexible component—which banks could allocate to sectors of their choice—has been cut from 35% to 20%, tightening the focus on priority sectors.

This move is expected to release ₹41,000 crore for SFBs to lend in areas like home loans, personal loans, or LAPs (Loan Against Property), improving profitability and credit diversification.

Question:

Q.1 What is the revised overall Priority Sector Lending (PSL) target for Small Finance Banks (SFBs) as per RBI’s guidelines announced on June 20, 2025?
a) 75% of ANBC or CEOBE
b) 70% of ANBC or CEOBE
c) 60% of ANBC or CEOBE
d) 50% of ANBC or CEOBE

Answer: c) The RBI reduced the overall PSL target for SFBs from 75% to 60% of Adjusted Net Bank Credit or Credit Equivalent of Off-Balance Sheet Exposures, aiming to offer more flexibility and credit diversification opportunities.