Reserve Bank of India has widened the scope of priority sector lending (PSL) and has brought start-ups under its purview.
The PSL status was till now reserved for MSMEs, agriculture, housing and education. Under PSL guidelines, banks are required to assign 40% of adjusted net bank credit or credit equivalent amount of off-balance sheet exposure, whichever is higher, to priority sector.
However, the RBI has not issued a detailed outlay of sub-target or restructuring guidelines in lending to start-ups.
Earlier with start-ups being considered as MSMEs, it was mandatory for them to show three years profitability, which was a tough for the early stage start-ups. This measure is expected to make easier for the start-ups to access bank credit and will go a long way in facing the downsides of liquidity crunch.
With many smaller and bootstrapped start-ups are struggling to stay afloat this is considered a positive development by analysts.