RBI News | June 23 | The priority sector lending requirements have been reduced for small finance banks from 75% to 60% from the financial year 2026
By Credit Samadhaan News Desk
RBI News | June 23, 2025 | Updated: 10:45 AM IST | ⏱️ 5 Min Read
In a significant regulatory move with long-term implications for India’s banking landscape, the Reserve Bank of India (RBI) has eased the priority sector lending (PSL) norms for Small Finance Banks (SFBs), triggering a surge in stock prices of lenders like Equitas, Ujjivan, AU SFB, and Jana SFB.
The RBI has revised the mandatory PSL requirement from 75% to 60% of Adjusted Net Bank Credit (ANBC) or Credit Equivalent of Off-Balance Sheet Exposure (CEOBE)—whichever is higher—starting from FY2026. The announcement is being widely welcomed by market participants and financial analysts as a structural positive for the sector.
What Is Priority Sector Lending (PSL)?
PSL refers to sectors identified by the RBI as crucial for the country’s economic development, such as agriculture, micro-enterprises, education, housing, and weaker sections of society. Commercial banks are mandated to lend 40% of ANBC to these sectors, while Small Finance Banks, until now, were required to allocate a significantly higher 75%.
Under the new framework, SFBs will now need to maintain only 60% PSL exposure, giving them additional portfolio flexibility and room to expand into non-PSL segments such as retail, vehicle, or unsecured personal loans.
Stock Market Reaction: SFBs in Green | RBI News
Following the announcement, SFB stocks reacted positively on Monday:
| Stock | Latest Price (10:45 AM IST) | % Change |
|---|---|---|
| Equitas Small Finance Bank | ₹65.10 | 🔺 +1.0% |
| Ujjivan Small Finance Bank | ₹48.82 | 🔺 +1.3% |
| Jana Small Finance Bank | ₹645.00 (approx.) | 🔺 +1.5% |
| AU Small Finance Bank | ₹640.00 (approx.) | ⏸️ Flat |
Equitas and Ujjivan saw early gains of up to 4%, before paring some of those gains in mid-morning trade. Jana SFB and AU SFB showed more muted responses but remain under close investor watch.
Expert View: A Structural Win for SFBs | RBI News
Morgan Stanley called the RBI’s move a “structural positive” for small finance banks. In a note to investors, the brokerage firm stated:
“This change allows SFBs greater freedom in portfolio structuring, enhances operational ease, and paves the way for sustainable profitability by allowing scaling of higher-yield non-PSL assets.”
Citi echoed similar sentiments, adding that:
“SFBs with diversified portfolios are now better positioned to enhance margins, lower compliance-related inefficiencies, and reduce overdependence on PSL certificates to bridge shortfalls.”
Background: Why This Move Matters | RBI News
The earlier 75% PSL requirement often limited small finance banks from venturing into more profitable lending avenues. It also forced them to acquire PSL certificates from other banks, especially during quarters of sluggish disbursement, thereby pressuring margins.
This burden was especially high for newer entrants like Jana SFB, which operates with relatively lean rural networks compared to older peers.
With the new guideline:
-
Risk-adjusted returns are expected to improve.
-
Loan book diversification will accelerate.
-
Profitability and valuation outlook could strengthen over the medium term.
Financial Snapshot of Leading SFBs | RBI News
| Bank | 52-Week High | Current Price | Performance vs 52-Week High |
|---|---|---|---|
| Equitas SFB | ₹110+ | ₹65.10 | 🔻 Down ~40% |
| Ujjivan SFB | ₹50.25 | ₹48.82 | 📈 Near 52-Week High |
| AU SFB | ₹720+ | ₹640 | 🔻 Down ~11% |
| Jana SFB | ₹760 (post-listing) | ₹645 | 🔻 Down ~15% |
Among these, Equitas remains significantly undervalued compared to its 52-week high, indicating potential room for a rebound as the regulatory overhang eases.
Broader Implications: What’s Next?
-
Stronger loan growth outlook for FY26 onwards.
-
Increased investor confidence in the long-term viability of SFBs.
-
Potential rationalization of credit costs as exposure shifts toward more secure or higher-yielding assets.
-
Possibility of rating upgrades if balance sheet health improves.
Market watchers also believe this could trigger a re-rating of the SFB segment and potentially attract more institutional investors.
What Analysts Are Saying:
🗣️ “This is a clear signal from the RBI that it wants SFBs to compete on an equal footing with other lenders. It’s a major regulatory unlock.”
— Gaurav Jawalkar, Market Analyst
🗣️ “Expect improved Return on Assets (RoA) and better NIMs in upcoming quarters as SFBs diversify beyond PSL-heavy books.”
— Neha Khurana, Banking Sector Expert
Key Takeaways
-
RBI reduces PSL requirement for SFBs from 75% to 60%, effective FY26.
-
Stocks of Equitas, Ujjivan, Jana SFB rise on the news, with Morgan Stanley and Citi seeing structural positives.
-
Greater flexibility means better profitability, loan book strength, and growth potential for SFBs.
Final Thoughts | RBI News
This move marks a regulatory turning point for India’s small finance banking sector. With more room to innovate and scale, SFBs may now step out of their narrow regulatory box and compete more efficiently with mainstream banks. Investors and borrowers alike should watch this space closely in the coming quarters.
Stay Updated with Credit Samadhaan
Want more such stock market insights, credit score tips, and financial strategies?
🔗 Visit: CreditSamadhaan.com
📱 Follow us on Instagram, Twitter, LinkedIn, and Facebook for daily updates.
Disclaimer
This story is intended for informational purposes only. The analysis provided here does not constitute investment advice. Please consult a certified financial advisor before making any trading or investing decisions. Credit Samadhaan is not responsible for individual investment actions taken based on this article.
