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Informist, Monday, Jan. 19, 2026

 

NEW DELHI – The Reserve Bank of India Monday notified amendments to its master directions on priority sector lending targets and classification. The amended norms are effective immediately, the RBI said.

 

The list of amendments largely aligns priority sector lending norms with other changes notified separately and updated to existing instructions. In the amended master direction, the central bank has included the National Cooperative Development Corp. as an eligible entity under the on-lending provisions of priority sector loans, subject to conditions including an overall cap of 5% of priority sector lending through this avenue.

 

Among other changes, the central bank reduced small finance banks' priority sector lending target to 60% of their adjusted net bank credit, from 75?rlier, or the credit equivalent of off-balance-sheet exposures, whichever is higher. It also allowed scheduled commercial banks to co-lend for priority-sector loans. Earlier, co-lending for this purpose was only permitted between banks and non-bank finance companies.

 

The regulator also set up new norms for the calculation of grandfathered loans on small finance banks' adjusted net bank credit. Apart from conversion cases, the Small Finance Banks – Licensing Guidelines, 2025, will apply if an existing NBFC or microfinance institution sets up a small finance bank and transfers its business to it. Loans made to NBFCs would count as priority sector as long as they are used for that purpose by the non-bank lender. The first audited balance sheet of the small finance bank after the commencement of its operations shall form the basis for its priority sector lending target for the next year, the RBI said. Small finance banks are only permitted to purchase priority sector lending certificates to fulfil their sub-targets for priority sector lending.

 

"The assets financed out of the above loans from the banks would not be reckoned for the ANBC (adjusted net bank credit) for priority sector calculation for the SFB, to the extent the lending bank enjoys PSL status on such grandfathered loans," the regulations said. "Any fresh assets created out of such outstanding grandfathered lending or any fresh assets created by the SFB post commencement of operations, in general, would be reckoned in the ANBC of the SFBs and the PSL norms as applicable to SFBs would kick in."

 

The credit equivalent of off-balance sheet exposures shall be calculated using the norms on concentration risk for commercial banks and the prudential norms on capital adequacy for small financial banks, urban co-operative banks and regional rural banks, the RBI said. The exemptions on priority-sector lending by issuing long-term bonds for infrastructure and affordable housing shall be dictated by resource raising directions notified for banks in 2025, rather than a 2014 circular.

 

Export credit to the agriculture sector and micro-, small-, and medium industries would only longer count as priority sector credit subject to aggregate limits within the sectors. Export credit would now be governed by the RBI's directions on credit facilities notified in 2025. Other categories of export credit continue to be counted as priority sector lending under their prior weightages.

 

Microfinance loans to individuals and members of self-help groups under priority sector lending will also be governed by the credit facilities directions. Loans to beneficiaries of the National Urban Livelihood Mission will no longer count as lending to Weaker Sections.

 

Investment in securitisation notes remains priority sector as long as the assets prior to securitisation were deemed so under the RBI's securitisation transaction norms. This provision does not apply to small finance banks and local area banks in the amended norms, in addition to regional rural banks and urban co-operative banks earlier. Security investment shall also be government by the transfer and distribution of credit risk norms, the RBI said.

 

"To ascertain priority sector status of the underlying portfolio, banks may rely on a combination of any external auditors' certification provided by the originating entity and conduct of sample check by their own staff or by an auditor for the purpose. This may be specified in their internal policy," the amended regulations said.

 

Banks must obtain external auditors' certificates to ensure that on-lending benefits from NBFCs is exclusive to a single entity and has not been claimed by another bank. Similarly loans to housing finance companies must also be audited for the same. Such credit is eligible for classification as priority sector lending for some borrowing, up to an aggregate loan limit of INR 2 million. 

 

Banks cannot levy loan-related charges on priority sector loans of up to INR 50,000, the regulator said. Rate of interest on all priority sector loans will be guided by the RBI's norms on interest rates for advances.  End

 

Reported by Aaryan Khanna

Edited by Akul Nishant Akhoury

 

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