RBI's Revised PSL Norms to Boost Credit Flow and Financial Inclusion
The Reserve Bank of India's (RBI) revised guidelines on Priority Sector Lending (PSL) are set to enhance credit flow to key sectors, improve financial inclusion, and make credit more accessible to weaker sections and women entrepreneurs, according to brokerage reports. The changes, which will take effect from April 1, 2025, aim to facilitate better targeting of bank credit towards housing, clean energy, start-ups, and education.
A report by IIFL highlighted that the easing of PSL norms will benefit banks with lower organic PSL generation, such as RBL Bank, IndusInd Bank, and Federal Bank. The report further stated that IndusInd Bank and Federal Bank have 32 percent organic PSL as a percentage of opening Adjusted Net Bank Credit (ANBC) in FY24. Meanwhile, banks like RBL Bank, State Bank of India (SBI), ICICI Bank, and IndusInd Bank may have to meet shortfalls through Priority Sector Lending Certificates (PSLC) purchases.
Macquarie’s analysis noted that while the revised norms do not significantly impact the fundamentals of banks, they indicate a more relaxed approach by the RBI, which could support banks in the long run. Additionally, Motilal Oswal’s report stated that major banks, including HDFC Bank, ICICI Bank, SBI, and Axis Bank, are expected to be among the biggest beneficiaries of the changes.
One of the significant modifications in the new PSL framework is the enhancement of loan limits, particularly in the housing sector. The revised guidelines prescribe three categories for priority sector classification in housing loans: Rs 50 lakh for cities with a population of 50 lakh and above, Rs 45 lakh for cities with a population between 10 lakh and 50 lakh, and Rs 35 lakh for smaller centres with populations below 10 lakh. The RBI has also specified the maximum cost of dwelling units for each category to ensure better credit targeting.
Furthermore, the PSL norms now broaden the scope of loans classified under 'renewable energy,' allowing greater financial support for sustainable projects. The move aligns with the government’s push towards clean energy and sustainability.
With these measures, experts believe the revised PSL guidelines will not only strengthen credit availability for priority sectors but also support economic growth by ensuring a more inclusive banking system.
