Kolkata: received a fresh lease of life with the lowering their target, firing up the share prices of the listed ones on Monday.
The relaxation will allow them, especially those with higher share of , to operate with greater flexibility, optimising capital allocation towards secured and high-value loans, which in turn will help them improve and boost profitability, the heads of these lending institutions said.
They expressed optimism that the regulatory change would enhance the attractiveness of small finance banks (SFBs) for investors and help them raise fresh capital. The share price of , jumped 4.5% to close at ₹67.40 apiece on Monday on the BSE, even as the Sensex fell 0.66% in reaction to the US attack on Iranian nuclear facilities. ‘s share price rose 3.2% to ₹32.2, while Jana SFB saw its price go up 3.9% to ₹506.1.
“The new regulation helps improve asset quality, optimise capital allocation, and enhance profitability-while continuing to serve priority sectors meaningfully,” managing director Sarvjit Singh Samra told ET.
The banking regulator on Friday lowered SFBs” priority sector lending target to 60% of adjusted net bank credit (ANBC) or credit equivalent of off-balance sheet exposures (CEOBE), whichever is higher, from 75% earlier.
The SFB shall continue to allocate 40% of ANBC or CEOBE to different sub-sectors under the priority sector, while the balance 20% can be allocated to any one or more sub-sectors where the bank has a competitive advantage. “This shift is expected to strengthen asset quality and enhance the overall stability of SFBs’ loan portfolios,” ESAF Small Finance Bank managing director K Paul Thomas told ET. ESAF, with half of its loan portfolio of ₹19,643 crore being unsecured, had its gross non-performing assets ratio at 6.9% at the end of March. Suryoday SFB’s gross NPA was 7.2% at the end of last fiscal. There are 11 small finance banks with a total loan portfolio of ₹2.79 lakh crore.
Paul Thomas said that earlier SFBs had to extend a significant share of unsecured loans and other small-ticket priority loans, which could carry higher credit risk. “With a reduced PSL requirement, SFBs can moderate their exposure to unsecured lending and focus more on secured advances, such as MSME loans, affordable housing, gold loans, and other collateral-backed products, while still fulfilling their core objectives,” he said.