Equitas, Ujjivan shares gain as RBI unveils revised lending norms

Equitas and Ujjivan Small Finance Bank shares saw gains of up to 4% on June 23, following the Reserve Bank of India's (RBI) modifications to the priority sector lending (PSL) guidelines. The RBI has reduced PSL requirements for small finance banks from 75% to 60%, effective from the financial year 2026. This revision aims to provide more flexibility by setting the figure to 60% of Adjusted Net Bank Credit or Credit Equivalent of Off Balance Sheet Exposure, whichever is higher, giving these banks a broader operational scope. This change is expected to enhance their ability to manage resources and expand their lending capabilities effectively.

This adjustment in PSL norms mandates that small finance banks (SFBs) allocate a specific portion of their lending to certain sectors, with any shortfall traditionally managed through purchasing priority sector lending certificates. Brokerage firm Morgan Stanley commented that "the RBI's move is a structural positive as it will give SFBs greater flexibility in terms of portfolio diversification and operational ease."

Additionally, Citi remarked that "the RBI move offers structural relief and operational flexibility, and the SFBs with a more diversified portfolio can now scale up the non-Priority Sector Lending portfolio." These changes are anticipated to bring about significant operational benefits and strategic advantages for SFBs.

In response to the announcement, shares of Equitas Small Finance Bank traded 1% higher at 65.1, though they remain over 40% down from their 52-week high. Meanwhile, shares of Ujjivan Small Finance Bank increased by 1.3% to 48.82, trading close to their 52-week high. Despite this positive movement, AU Small Finance Bank shares remained relatively stable.

Analysts suggest that the RBI's revised guidelines could potentially enhance growth rates for these banks over the long term, as they will now have greater freedom to diversify their portfolios beyond priority sectors. This strategic shift is likely to improve their competitive positioning in the financial sector.