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RBI relaxes PSL norms to improve financial inclusion

ICICIdirect Research 28 Mar 2025 DISCLAIMER

 Reserve Bank of India has rolled out revised Priority Sector Lending (PSL) guidelines, set to take effect from April 1, 2025, with the goal of improving access to credit. Key changes include; 

  1. Increase in limit for home loans at ₹50 lakhs (for centres with population over 50 lakh), from earlier ₹35 lakh to ₹45 lakhs (centres with population between 10-50 lakhs) and from ₹25 lakh to ₹35 lakh (centres with population less than 10 lakh),
  2. increase in limit of loans for renewable projects from ₹30 crore to ₹35 crore,
  3. Explicit inclusion of individual members of JLG/ SHG,
  4. Apart from above other announcement includes introduction of non-corporate farmer limit of 14% within agri limit of 18% and defined interest rates based on shortfall.

In our view, relaxation in PSL norms will enhance financial inclusion through better accessibility to credit while banks with sizeable exposure to home loans (SBI, HDFC Bank) could remain minor beneficiaries. Given uncertain external environment, volatility in near term could not be ruled out. However, anticipation of a further 25 bps rate cut, continued infusion of liquidity to ensure transmission of rate cuts, steady domestic macro-economic performance is expected to push fundamental growth while reasonable valuation remains a tailwind. Thus, we continue to prefer large banks including Kotak Mahindra Bank, Axis Bank and HDFC Bank.

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