Why in News :
- The Reserve Bank of India (RBI) has revised the PSL requirements for Small Finance Banks, relaxing the earlier mandate that 75% of their Adjusted Net Bank Credit (ANBC) be directed towards priority sectors.
What Has Changed?
Earlier Norm:
- SFBs were required to lend 75% of their ANBC to Priority Sector Lending (PSL).
- Within this, 40% was earmarked for specific sub-sectors (e.g. agriculture, micro-enterprises, education, housing).
- The remaining 35% could be allocated flexibly within any PSL categories.
Revised Norm:
- The rigid 75% target has been relaxed, making SFB lending structure more aligned with that of universal banks.
- This change offers greater operational flexibility but may dilute focus on underserved sectors.
Key Issues for Analysis:
Impact on Financial Inclusion:
- SFBs were created to serve the unbanked and underserved — especially small borrowers and rural enterprises.
- Loosening PSL mandates could risk mission drift away from financial inclusion goals.
Operational Autonomy vs Developmental Role:
- Greater flexibility allows SFBs to compete with universal banks.
- But the developmental mandate must not be compromised — RBI may need to introduce monitoring mechanisms.
Market Competition:
- With SFBs expanding into urban and competitive markets, regulatory parity could ensure level playing field.
- However, it may result in urban-centric lending patterns unless checks are in place.
Policy Trade-off:
- Balancing commercial viability of SFBs with social objectives is a complex policy challenge.
- Could necessitate targeted incentives or schemes to retain rural lending.
Way Forward:
RBI may consider:
- Performance-linked PSL targets.
- Incentives for rural and underserved lending (e.g., differential CRR benefits).
- Monitoring SFBs’ credit distribution patterns post-relaxation.
| UPSC Relevance: GS2 – Governance: Role of regulatory bodies like RBI in financial inclusion. GS3 – Indian Economy: Banking reforms, inclusive growth, rural credit, MSMEs. Possible UPSC Mains Question: Q. “The relaxation of Priority Sector Lending norms for Small Finance Banks is a step towards regulatory parity but may dilute their developmental focus.” Discuss. |