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What are Priority Sector Lending (PSL) guidelines?

Priority Sector Lending (PSL) guidelines facilitate availability of credit to various sectors. 

When were PSL guidelines revised?

PSL guidelines were revised in September 2020, taking into account the recommendations of ‘Expert Committee on Micro, Small and Medium Enterprises’ (Chairman: Shri U.K. Sinha) and ‘Internal Working Group to Review Agriculture Credit’ (Chairman: Shri M. K. Jain). 

To whom does PSL guidelines apply?

PSL guidelines apply to –

  • Commercial Banks [Regional Rural Bank (RRB), Small Finance Bank (SFB), Local Area Bank] 
  • Primary (Urban) Co-operative Bank (UCB) other than Salary Earners’ Bank 

Which sectors are covered under PSL?

Categories under priority sector –

  1. Agriculture
  2. Micro, Small and Medium Enterprises
  3. Export Credit
  4. Education
  5. Housing
  6. Social Infrastructure
  7. Renewable Energy
  8. Others

What are PSL targets for banks?

Targets and sub-targets set under priority sector lending, to be computed on the basis of the Adjusted Net Bank Credit (ANBC) / Credit Equivalent of Off-Balance Sheet Exposures (CEOBE) as applicable as on the corresponding date of the preceding year.

Categories Total Priority Sector Agriculture Micro Enterprises Advances to Weaker Sections
Domestic commercial banks (excluding RRBs & SFBs) & foreign banks with 20 branches and above 40%
18%
Out of which 10% SMFs
 7.5% 12%
Foreign banks with less than 20 branches
40%
Out of which up to 32% to Exports and at least 8% to any other priority sector
 Not applicable
Regional Rural Banks
75%
Out of which, to Medium Enterprises, Social Infrastructure and Renewable Energy only up to 15%
18%
Out of which 10% for SMFs
 7.5% 15%
Small Finance Banks 75%
18%
Out of which 10% for SMFs
 7.5% 12%
Primary Urban Co-operative Bank 75%
To be achieved in phased manner by March 31, 2024
 Not applicable 7.5% 12%

What are the targets for lending to small and marginal farmers and weaker section?

Targets for lending to small and marginal farmers (SMFs) and for Weaker Sections have been revised upwards from FY 2021-22 onwards as follows –

Financial Year Small and Marginal Farmers target Weaker Sections target
2020-21 8% 10%
2021-22 9% 11%
2022-23 9.5% 11.5%
2023-24 10% 12%
Weaker Sections target for RRBs continue to be 15% of ANBC / CEOBE, whichever is higher.

What weights are assigned to PSL achievements?

To address regional disparities in the flow of priority sector credit at the district level, weights have been assigned to ascertain the PSL achievements. From FY 2024-25 onwards –

  • Higher weight (125%) is assigned to the incremental priority sector credit in the identified districts where the credit flow is comparatively lower (per capita PSL less than ₹9000), and 
  • Lower weight (90%) is assigned for incremental priority sector credit in the identified districts where the credit flow is comparatively higher (per capita PSL greater than ₹42,000). 
  • Other districts continue to have existing weightage of 100%.
The list of both categories of districts given in the guidelines will be valid up to FY 2026-27. 

What action is taken against banks failing to achieve PSL target?

Banks having any shortfall in lending to priority sector need to contribute to Rural Infrastructure Development Fund (RIDF) established with National Bank for Agriculture and Rural Development (NABARD) and other funds with NABARD / National Housing Bank (NHB) / Small Industries Development Bank of India (SIDBI) / Micro Units Development & Refinance Agency Ltd. (MUDRA Ltd).

The interest rates on banks’ contribution to RIDF or any other funds, tenure of deposits, etc. is fixed by Reserve Bank of India (RBI).

What are reporting timelines for PSL?

Data on priority sector advances
Furnished by Furnished to Periodicity
Banks FIDD, CO, RBI Quarterly and Annual
RRBs NABARD Quarterly and Annual
UCBs Regional Office of DoS, RBI Quarterly and Annual

What are service charges for priority sector loans?

No loan related and ad hoc service charges / inspection charges should be levied on priority sector loans up to ₹25,000. In the case of eligible priority sector loans to Self-Help Groups (SHGs) / Joint Liability Groups (JLGs), this limit is applicable per member and not to the group as a whole.

What are the recent updates for on-lending in PSL?

  • Bank credit to Non-Banking Financial Companies (NBFCs) [including Housing Finance Companies (HFCs)] for on-lending is allowed up to 5% of a bank’s total priority sector lending in case of commercial banks. 
  • In case of Small Finance Banks (SFBs), credit to Non-Banking Financial Company – Micro Finance Institutions (NBFC-MFIs) and other MFIs (Societies, Trusts, etc.) which are members of RBI recognized ‘Self-Regulatory Organisation’ of the sector, is allowed up to 10% of a bank’s total priority sector lending. 
  • These limits to be computed by averaging across four quarters of the financial year, to determine adherence to the prescribed cap.
  • SFBs are allowed to lend to registered NBFC-MFIs and other MFIs which have a ‘gross loan portfolio’ (GLP) of up to ₹500 crore as on March 31 of the previous financial year, for the purpose of on-lending to priority sector. 
  • In case the GLP of the NBFC-MFIs / other MFIs exceeds the stipulated limit at a later date, all priority sector loans created prior to exceeding the GLP limit will continue to be classified by the SFBs as PSL till repayment / maturity, whichever is earlier.

What are other updates on PSL guidelines?

  • All domestic banks (other than UCBs) and foreign banks with more than 20 branches are directed to ensure that the overall lending to Non-Corporate Farmers (NCFs) does not fall below the system-wide average of the last three years’ achievement which is separately notified every year. 
  • The applicable target for lending to the non-corporate farmers for FY 2022-23 is 13.78% of ANBC / CEOBE whichever is higher. 

References

Reserve Bank of India. (2020, September 04). 'Master Directions – Priority Sector Lending (PSL) – Targets and Classification (Updated as on October 20, 2022)'. Retrieved from https://m.rbi.org.in/scripts/BS_ViewMasDirections.aspx?id=11959

Reserve Bank of India. (2022, May 13). 'Lending by Commercial Banks to NBFCs and Small Finance Banks (SFBs) to NBFC-MFIs, for the purpose of on-lending to priority sectors'. Retrieved from https://www.rbi.org.in/Scripts/NotificationUser.aspx?Id=12317&Mode=0

Reserve Bank of India. (2022, August 11). 'Priority Sector Lending (PSL) - Target for Non-Corporate Farmers FY2022-23'. Retrieved from https://rbidocs.rbi.org.in/rdocs/content/pdfs/PSLNCF11082022.pdf

Reserve Bank of India. (2024, June 21). 'Priority Sector Lending – Amendments to the Master Directions'. Retrieved from https://www.rbi.org.in/Scripts/NotificationUser.aspx?Id=12694&Mode=0


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