Jana Small Finance Bank, ESAF SFB, Ujjivan, Equitas SFB: Small finance bank shares gain in trade; here is why

The shares rallied up to over 3% in the early trade, as the Reserve Bank of India (RBI) on Friday eased lending norms for small finance banks by reducing their mandatory priority sector lending (PSL) requirement — covering areas like agriculture and small enterprises by 15 percentage points.

Small finance banks currently have to extend 75% of their loans to priority sectors. After its review, the RBI has effectively cut the requirement to 60% of total lending.

The RBI statement read, "On a review, it has been decided that financial year 2025-26 onwards, the additional component (35%) of PSL shall be reduced to 20%, thereby making the overall PSL target 60% of Adjusted Net Bank Credit (ANBC) or Credit Equivalent of Off-Balance Sheet Exposures (CEOBE), whichever is higher."

The statement added, "The SFB shall continue to allocate 40% of its ANBC or CEOBE, whichever is higher, to different sub-sectors under PSL as per the extant PSL prescriptions, while the balance 20% shall be allocated to any one or more sub-sectors under the PSL where the bank has a competitive advantage."

What are small finance banks?

Small Finance Banks (SFBs) are specialised financial institutions established with the primary goal of fostering financial inclusion by offering basic banking services to underserved and unbanked segments of society. Regulated by the Reserve Bank of India (RBI), SFBs bridge the financial gap in rural and semi-urban areas, focusing on small business units, micro and small industries, marginal farmers, and unorganised sectors.

What is priority sector lending?

Priority Sector Lending (PSL) is an initiative overseen by the Reserve Bank of India (RBI) that mandates banks to allocate a part of their lending to specific sectors of the economy. These sectors are crucial for inclusive economic growth but often lack adequate credit. Some examples are agriculture, MSMEs (Micro, Small, and Medium Enterprises), education, housing, and microfinance.

How shares are faring

In the early trade, shares of Jana Small Finance Bank were trading 1.62% higher at ₹494.65 apiece on the NSE. while Ujjivan Small Finance Bank was up 0.23% at ₹48.30. ESAF Small Finance Bank shares were trading nearly 2.5% higher at ₹32.17 apiece on the NSE. Equitas Small Finance Bank was up over 1% at ₹65.25 on the NSE.