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Priority Sector Lending

Priority Sector Lending:

The RBI recently revised its priority sector guidelines to encourage banks to provide small loans in economically disadvantaged districts with low average loan sizes.

  • Priority Sector Lending (PSL) is a lending requirement administered by the RBI, requiring banks to give a minimum proportion of their loans to sectors of development importance or the sectors that have difficulty of getting loans.
  • The RBI is periodically updating the sectors that are eligible to get priority sector lending and the limits of loans.
  • Similarly, the regulations identify institutions that are obliged to provide these loans.
  • The categories of priority sectors are as follows:
    • Agriculture
    • Micro, Small, and Medium Enterprises
    • Export Credit
    • Education
    • Housing
    • Social Infrastructure
    • Renewable Energy
  • The targets under PSL:
    • Domestic SCBs and foreign banks with 20 branches and above: 40 percent of Adjusted Net Bank Credit (ANBC) or Credit Equivalent Amount of Off-Balance Sheet Exposure (CEOBE), whichever is higher.
    • Foreign banks with less than 20 branches: 40 percent of ANBC or CEOBE, whichever is higher; out of which up to 32% can be in the form of lending to exports and not less than 8% can be to any other priority sector.
    • Regional Rural Banks and Small Finance Banks: 75 percent of ANBC or CEOBE, whichever is higher.
    • Primary (Urban) Co-operative Banks (UCBs): 40 percent of ANBC or CEOBE, whichever is higher, which shall be increased to 75 percent of ANBC or CEOBE, whichever is higher, with effect from FY2025-26.