SFBs see many positives as RBI reduces PSL target

Opportunities Galore

- KSHIPRA PETKAR

SMALL FINANCE BANKS will benefit a lot from the Reserve Bank of India's (RBI) decision to reduce priority sector lending (PSL) target from 75% to 60%, as this will give them more freedom to lend and improve profitability, market participants said.

Sarvjit Singh Samra, managing director and CEO of Capital Small Finance Bank, said the 75% mandate led to challenges such as difficulty in finding quality PSL borrowers, lower margins due to high risks, low-yield lending and operational constraints like smaller teams and limited tech infrastructure.

"It wasn't about lack of demand, but a mismatch between what was expected and what was practical. The new norms aim to solve this—shifting the focus from volume to value," Samra said.