iSPIRT unveils priority sector lenders' body, to help small businesses

iSPIRT, a think tank for the Indian software products industry, said it has formed the Priority Sector Lenders Association of India (PSLAI), bringing together founding members such as UGRO Capital, IIFL, and fintechs like GetVantage.

PSLAI has been conceptualised to focus on loans under the Priority Sector Lending (PSL) norms, which are a key business vertical for banks and NBFCs.

Indian Software Products Industry Round Table (iSPIRT) believes that India’s digital growth, driven by the Indian Digital Public Infrastructure, has created new opportunities for the Small and Medium Enterprise and Micro, Small, and Medium Enterprise sector. 

And with the right product developments and policy support, credit in this sector could double to nearly Rs 130 trillion in the next few years and achieve 2x growth in the next 3-5 years.

“The focus of PSLAI will be on initiating conversation on liberalised risk weightage on PSL portfolios, mitigating perceived risks through Digital Public Infrastructure, and establishing fair practices within the industry,” Sharad Sharma, Co-founder, iSPIRT said, in a statement.

He added that PSLAI will advocate for policy reforms that will further strengthen the borrower ecosystem, particularly for MSMEs.

Priyashmita Guha will lead PSLAI as its chief executive officer, supported by the Board of Directors. Previously, Guha served as chief operating officer of the Digital Lenders Association of India, where she played a key role in expanding the association’s network.

Under current Reserve Bank of India (RBI) regulations, banks must allocate at least 40% of their Adjusted Net Bank Credit (ANDC) to priority sector loans, amounting to approximately Rs 64 trillion annually for MSMEs. Due to the smaller size and higher risk of these loans, banks primarily meet this requirement through indirect methods like securitisation deals. Agriculture and affordable housing are two of the sectors under PSL.

The MSME sector faces a credit gap of Rs 103 trillion as of FY 2024. With a credit demand of Rs 138 trillion, only 25% of the sector’s formal financing needs are met, leaving most MSMEs dependent on informal credit sources.

“If you go and talk to a bank in India today, they will say MSME financing is not an issue. Every shopkeeper can get an Udyam certificate and become a priority sector borrower,” Shachindra Nath, Founder and Managing Director, of UGRO Capital, noted.

“The Bank’s 7.5% PSL requirement for MSME gets completely filled up. With a provision of being tagged or licensed as NBFC-PSL, technically any lending from a bank to such an entity can come at a lower rate and be part of the Bank’s priority sector lending,” he added.

PSLAI plans to promote digital networks like the Open Credit Enablement Network and other DPI technology platforms as key tools for product development, collaborating with network partners and financial institutions to create innovative lending products.

It aims to unite financial institutions, industry stakeholders, regulatory authorities, and tech companies to address the unique challenges within PSL.