The Reserve Bank of India has recently announced that it will be setting up an Innovation Hub to promote innovation in the fintech sector. RBI governor Shaktikanta Das said that RBI would be bringing startups under its priority sector lending (PSL) that will make the lending process smoother for startups.

The Reserve Bank of India stated that the PSL guidelines had been reviewed with a view to aligning the guidelines with emerging national priorities and bring a sharper focus on inclusive development.

Under this development, banks would be required to assign 40% of the adjusted net bank or credit equivalent amount of unbalance sheet exposure, whichever one is higher the priority sector.

Supporting the startup ecosystem

Presently, RBI has got agriculture, MSMEs, education, housing, social infrastructure, etc. under the umbrella of priority sector lending.

As reported by Outlook India (1), it has also been decided to include “start-ups; increasing the limits for renewable energy, including solar power & compressed biogas plants; and, increasing the targets for lending to ”Small and Marginal Farmers” and ”Weaker Sections” by the RBI.

Renewable energy sectors that include solar power & compressed biogas plants were already eligible for priority lending, but with the current revisions, the cap of borrowing has also been raised.

The latest development comes as a relief for the Indian startup ecosystem that has been struggling due to loss of revenue during the pandemic. With this, even investors have become very picky about which startup to invest in.

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