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    SFBs should continue to evolve in tune with differentiated licence: RBI


    Money & Banking

    SFBs’ priority sector lending in total lending declined for fourth consecutive year during FY21

    The Reserve Bank of India (RBI) has advised Small Finance Banks (SFBs) to continue to evolve in tune with the differentiated banking licence given to them, with proportionate growth in their capital base.

    This advisory comes in the wake of the share of SFBs’ priority sector lending (PSL) in total lending declining for the fourth consecutive year during FY21, with the non-priority sector accounting for more than 28 per cent of total loans as of March 2021-end.

    The share of SFBs’ PSL in total lending declined from 76 per cent in FY20 to 71.8 per cent FY21, per RBI’s report on trend and progress of banking in India. These banks are expected to deploy 75 per cent of their credit in priority sectors, with at least 50 per cent below ₹25 lakh.

    In a meeting that Deputy Governors MK Jain and M Rajeshwar Rao had with SFB chiefs on Friday, matters related to asset quality concerns, including viable portfolio mix and further strengthening of customer service and grievance redressal framework with commensurate IT resilience, were also discussed.

    Gross non-performing assets (GNPAs) of SFBs rose to 5.4 per cent of gross advances as of March 2021-end, against 1.9 per cent as of March 2020-end.

    The RBI, in its statement, referred to the earlier meeting (held on August 27, 2021) with the heads of SFBs, where evolution of their business model and the need for enhancing board oversight and professionalism, improving assurance functions and augmenting IT infrastructure, taking into account the stress build-up due to Covid along with requisite mitigation measures, were discussed.

    “In the meeting held today, the emphasis on according due importance to these themes for sustainable growth of SFBs, particularly their business model and governance, was reiterated after taking stock of the developments in the sector,” per the statement.

    Executive Directors of Supervision and Regulation and other senior officials of the Reserve Bank also attended the meeting.

    Published on June 10, 2022

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