The RBI has assigned priority sector lending (PSL) status to India’s startup sector. This is expected to help thousands of small startups get better access to bank credit for working capital support.
This is a huge booster as sufficient funding and user adoption are two primary challenges for Indian entrepreneurs. The current environment has exponentially increased the digital adoption & banks stepping in to assist with funding will be a huge booster.
The PSL status was till now reserved for sectors such as micro, small and medium enterprises (MSMEs), agriculture, education and housing.
All scheduled commercial banks and foreign banks with a sizeable presence in India are mandated to set aside 40% of their Adjusted Net Bank Credit (ANDC) for lending to these sectors.
“PSL status is also being given to startups; and the limits for renewable energy, including solar power and compressed bio-gas plants, are being increased,” said RBI Governor Shaktikanta Das.
The banking sector regulator has not issued a detailed outlay of sub-target or restructuring guidelines in lending to start-ups. The move would, however, benefit smaller bootstrapped businesses that had earlier faced challenges in getting low-priced debt from banks.
Venture capitalists, private equity firms and individual investors have for long been the main sources of capital for the startup sector, but the latest move could give a fillip to several smaller players who had to depend on unorganised sources of capital, is another view.
Ref: Economic times.