RBI Accelerates Start-Ups Into Priority Sector Lending

1. INTRODUCTION

In a significant shift in its lending norms, the Reserve Bank of India (the “RBI”) on August 06, 2020 has announced that going forward, start-ups will be included in Priority Sector Lending (“PSL”).¹ While the detailed outlay and guidelines on the inclusion are awaited, the revision aims to ensure that start-ups have access to easy credit from banks.

1. HIGHLIGHTS

Till now, priority sector included micro, small and medium enterprises (“MSME”), agriculture, export credit, education, housing, social infrastructure, and renewable energy amongst others. Under the PSL guidelines, banks are required to provide 40% of Adjusted Net Bank Credit to PSL.² Inclusion of start-ups in PSL will allow them to access bank credit which otherwise is difficult to procure due to risk profile attached to their projects.