**Policy Summary: Priority Sector Lending Norms for Small Finance Banks (SFBs)**
This policy addresses priority sector lending (PSL) norms for Small Finance Banks (SFBs) in India. The policy acknowledges a shortfall in PSL by banks in recent years, with allocations to the Rural Infrastructure Development Fund (RIDF) and other funds totaling ₹2,10,000 crore in FY 2022-23, ₹1,50,000 crore in FY 2023-24, and ₹1,63,000 crore in FY 2024-25. The decrease in PSL shortfall indicates improved lending by banks to priority sectors such as agriculture, MSMEs, education, and housing.
The Reserve Bank of India (RBI) has revised PSL norms for SFBs, reducing the required PSL target from 75% to 60% of Adjusted Net Bank Credit (ANBC). Under the revised guidelines dated June 20, 2025, 40% of ANBC must be allocated to sub-sectors according to existing PSL prescriptions. The remaining 20% can be strategically allocated to sub-sectors, including agriculture (particularly small and marginal farmers), micro-enterprises, education, housing, renewable energy, and weaker sections, based on the SFB's competitive advantage. This adjustment aims to promote lending to crucial sectors for socioeconomic development and inclusive growth.
Key Entities Referenced
Small Finance Banks: A type of bank in India with specific regulatory guidelines and a focus on serving specific populations.
Priority Sector Lending: A scheme by Reserve Bank of India to ensure that banks provide a specified portion of their lending to certain sectors of the economy.
Reserve Bank of India: The central bank of India, responsible for regulating the banking system and monetary policy.
Ministry of Finance: A ministry in the Government of India responsible for financial matters.
Shri Basavaraj Bommai: An individual, likely a member of parliament, who posed a question to the Minister of Finance.
SHRI PANKAJ CHAUDHARY: Minister of State in the Ministry of Finance who provided the answer to the question.
Rural Infrastructure Development Fund: A fund managed by NABARD to provide loans to state governments and state-owned corporations for rural infrastructure projects.
NABARD: National Bank for Agriculture and Rural Development, an apex development finance institution in India.
Government of India
Ministry of Finance
Department of Financial Services
LOK SABHA
Unstarred Question No. 17
ANSWERED ON MONDAY, 21 JULY, 2025/ ASHADHA 30, 1947 (SAKA)
Lending Norms for Small Finance Banks (SFBs)
17. Shri Basavaraj Bommai
Will the Minister of Finance be pleased to state:
(a) whether there is a huge shortfall in priority sector lending in the last three years;
(b) if so, the year-wise details along with the reasons thereof;
(c) whether the RBI eases priority sector lending norms for Small Finance Banks (SFBs);
(d) if so, the details thereof; and
(e) the extent to which the new norms would promote various sectors particularly
agriculture, education, housing, renewable energy, MSME and weaker sections in the
country?
Answer
MINISTER OF STATE IN THE MINISTRY OF FINANCE
(SHRI PANKAJ CHAUDHARY)
(a)and (b) In terms of Master Directions on Priority Sector Lending (PSL) dated March
24, 2025 issued by Reserve Bank of India (RBI), Banks having shortfall in priority
sector lending vis-à-vis the prescribed target/sub-targets shall be allocated amounts for
contribution to the Rural Infrastructure Development Fund (RIDF) and other funds with
NABARD/NHB/SIDBI/MUDRA Ltd., as decided by the Reserve Bank from time to
time.
The details of the aggregate PSL Shortfall of all banks, allocated to various funds for
the last three years are as follows:
Year Amount (in ₹ crore)
FY 2022-23 2,10,000
FY 2023-24 1,50,000
FY 2024-25 1,63,000The PSL shortfall decreased considerably in recent years, due to the reason that banks were
able to lend more under priority sector viz. Agriculture, Micro, Small and Medium
Enterprises (MSMEs), Education, Housing, etc., as deemed crucial for socio-economic
development and inclusive growth of the country.
(c) to (e): A Small Finance Bank (SFB) was earlier required to extend 75% of its Adjusted
Net Bank Credit (ANBC) to eligible sectors under Priority Sector Lending (PSL).
In terms of the revised guidelines on Priority Sector Lending Norms on Small Finance
Banks dated 20 June 2025 issued by RBI, PSL target of SFBs has been reduced from 75%
to 60% of ANBC. As per norms, 40 % of its ANBC should be allocated to different sub-
sectors as per the extant PSL prescriptions. The additional 20% can be allocated to any one
or more sub-sectors under the PSL which include agriculture, small and marginal farmers,
micro enterprises, education, housing, renewable energy and advances to weaker sections,
where it may have a competitive advantage.
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