RBI’s Updated PSL Directives for Small Finance Banks

Concerning: They function under the oversight of the RBI in India, within the scope of the central bank’s Banking Ombudsman Scheme, 2006, modified periodically.

SFBs operate as publicly traded companies in accordance with the Companies Act, 2013 and are regulated by the Banking Regulations Act, 1949, and the RBI Act, 1934.

They must comply with RBI’s prudential regulations for commercial banks, which encompass CRR and SLR.

Goals: SFBs strive to offer savings options and credit facilities to neglected sectors such as small enterprises, farmers, micro-industries, and the informal sector by utilizing affordable, technology-based operations.

Eligibility: Eligible promoters comprise resident individuals having 10 years of experience in banking/finance, resident-owned businesses/societies, and current NBFCs, MFIs, and LABs. Promoters should possess a solid history of at least five years.

Small Finance Banks provide fundamental banking services like Savings Accounts, Current Accounts, Fixed Deposits, Recurring Deposits, Loans, and more.

Capital Requirements: The minimum paid-up equity capital is INR 100 crore, with promoters required to contribute at least 40% at the start (decreasing to 26% within 12 years). Foreign ownership adheres to the FDI regulations for private sector banks.

Important Modifications declared by RBI

The target for PSL loans for SFBs has been reduced to 60 percent of their loans, down from 75 percent, effective this financial year.

The extra portion (35 percent) of PSL will be decreased to 20 percent, resulting in an overall PSL goal of 60 percent of ANBC (adjusted net bank credit) or Credit Equivalent of Off-Balance Sheet Exposures (CEOBE), whichever is greater, starting from the financial year 2025-26.

SFBs will persist in designating 40 percent of their ANBC or CEOBE, whichever is greater, to various sub-sectors under PSL according to the current PSL guidelines, while the remaining 20 percent may be assigned to any one or more sub-sectors under the PSL.