The Reserve Bank of India 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.
Under PSL guidelines, banks have to set aside a specific portion of bank lending to sectors deemed important by the central bank.
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.
“With a view to aligning the guidelines with emerging national priorities and bring sharper focus on inclusive development, the Priority Sector Lending (PSL) guidelines have been reviewed,” said RBI Governor Shaktikanta Das during his monetary policy speech on Thursday.
“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,” he added.
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.
“Under the new PSL norms, startups will now be able to attract better pricing,” said Ishpreet Singh Gandhi, founder of Stride Ventures, which specialises in debt funding to early stage startups.
“The development brings to light a much-needed move to increase the concentration of banking play in the startup ecosystem, especially during current times of turmoil,” Gandhi added.
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, such as family and friends, said experts.