Priority Sector Lending


Priority sector lending (PSL) is aimed to provide financial inclusion in the country.

All Indian banks have to follow the compulsory target of priority sector lending (PSL).

Indian Banks need to lend 40 per cent to the priority sector every year (public sector as well as private sector banks, both) of their total lending.

Foreign Banks have to fulfill only 32 per cent PSL target.

RRBs’ (Regional Rural Banks) need to lend 75 per cent to the priority sector of their total lending.

Priority Sector includes the following categories—

[1] Agriculture

[2] Micro, Small and Medium Enterprises

[3] Export Credit

[4] Education

[5] Housing loans (not more than Rs. 10 lakhs)

[6] Social Infrastructure

[7] Renewable Energy

[8] Self Help Groups (SHGs),

[9] SCs, STs and other weaker sections of society

The five minorities, namely the Muslims, Christians, Sikhs, Buddhists and Parsis have been included under the PSL.

 

Targets and Sub-targets for banks under priority sector

 

Domestic scheduled commercial banks and Foreign banks with 20 branches and above

[A] Total Priority Sector—

[1] 40 percent of Adjusted Net Bank Credit (ANBC) or Credit Equivalent Amount of Off-Balance Sheet Exposure, whichever is higher.

[2] Foreign banks with 20 branches and above have to achieve the Total Priority Sector Target within a maximum period of five years starting from April 1, 2013 and ending on March 31, 2018 as per the action plans submitted by them and approved by RBI.

[a] Agriculture—

The activities covered under Agriculture are classified under three sub-categories viz. Farm credit, Agriculture infrastructure and Ancillary activities.

[1] 18 percent of ANBC or Credit Equivalent Amount of Off-Balance Sheet Exposure, whichever is higher.

[2] Within the 18 percent target for agriculture, a target of 8 percent of ANBC or Credit Equivalent Amount of Off-Balance Sheet Exposure, whichever is higher is prescribed for Small and Marginal Farmers, to be achieved in a phased manner i.e., 7 per cent by March 2016 and 8 per cent by March 2017.

[3] Foreign banks with 20 branches and above have to achieve the Agriculture Target within a maximum period of five years starting from April 1, 2013 and ending on March 31, 2018 as per the action plans submitted by them and approved by RBI.

[4] The sub-target for Small and Marginal farmers would be made applicable post 2018 after a review in 2017.

[b] Micro Enterprises—

[1] 7.5 percent of ANBC or Credit Equivalent Amount of Off-Balance Sheet Exposure, whichever is higher to be achieved in a phased manner i.e. 7 per cent by March 2016 and 7.5 per cent by March 2017.

[2] The sub-target for Micro Enterprises for foreign banks with 20 branches and above would be made applicable post 2018 after a review in 2017.

Bank loans up to 5 crore per unit to Micro and Small Enterprises and 10 crore to Medium Enterprises engaged in providing or rendering of services and defined in terms of investment in equipment under MSMED Act, 2006 are eligible for classification under priority sector.

[c] Advances to Weaker Sections—

[1] 10 percent of ANBC or Credit Equivalent Amount of Off-Balance Sheet Exposure, whichever is higher.

[2] Foreign banks with 20 branches and above have to achieve the Weaker Sections Target within a maximum period of five years starting from April 1, 2013 and ending on March 31, 2018 as per the action plans submitted by them and approved by RBI.

Bank credit to Micro Finance Institutions (MFI) extended for on-lending to individuals/ members of SHGs/ JLGs for water and sanitation facilities is also eligible for classification as priority sector loans under ‘Social Infrastructure’ subject to certain criteria.

 

Foreign banks with less than 20 branches

[1] 40 percent of Adjusted Net Bank Credit or Credit Equivalent Amount of Off-Balance Sheet Exposure, whichever is higher; to be achieved in a phased manner by 2020.

 

Limits under Priority Sector

Social infrastructure loans—

Bank loans up to a limit of 5 crore per borrower for building social infrastructure for activities namely schools, health care facilities, drinking water facilities and sanitation facilities are eligible for classification under priority sector.

Loans for renewable energy—

Bank loans up to a limit of 15 crore to borrowers for purposes like solar based power generators, biomass based power generators, wind mills, micro-hydel plants and for non-conventional energy based public utilities viz. street lighting systems, and remote village electrification are eligible to be classified under priority sector loans under ‘Renewable Energy’.

For individual households, the loan limit is 10 lakh per borrower.

Loans for education—

Loans to individuals for educational purposes including vocational courses upto 10 lakh irrespective of the sanctioned amount are eligible for classification under priority sector.

Housing loans—

Loans to individuals up to 28 lakh in metropolitan centres (with population of ten lakh and above) and loans up to 20 lakh in other centres for purchase/construction of a dwelling unit per family, are eligible to be considered as priority sector provided the overall cost of the dwelling unit in the metropolitan centre and at other centres does not exceed 35 lakh and 25 lakh, respectively.

Housing loans to banks’ own employees are not eligible for classification under priority sector.

 

Weaker Sections under priority sector

[a] Small and Marginal Farmers

[b] Artisans, village and cottage industries where individual credit limits do not exceed 1 lakh

[c] Beneficiaries under Government Sponsored Schemes such as National Rural Livelihoods Mission (NRLM), National Urban Livelihood Mission (NULM) and Self Employment Scheme for Rehabilitation of Manual Scavengers (SRMS)

[d] Scheduled Castes and Scheduled Tribes

[e] Beneficiaries of Differential Rate of Interest (DRI) scheme

[f] Self Help Groups

[g] Distressed farmers indebted to non-institutional lenders

[h] Distressed persons other than farmers, with loan amount not exceeding 1 lakh per borrower to prepay their debt to non-institutional lenders

[i] Individual women beneficiaries up to 1 lakh per borrower

[j] Persons with disabilities

[k] Overdrafts upto 5,000/- under Pradhan Mantri Jan-DhanYojana (PMJDY) accounts, provided the borrowers’ household annual income does not exceed 100,000/- for rural areas and 1,60,000/- for non-rural areas

[l] Minority communities as may be notified by Government of India from time to time

 

Non-achievement of Priority Sector targets

Scheduled Commercial Banks having any shortfall in lending to priority sector shall be allocated amounts for contribution to the Rural Infrastructure Development Fund (RIDF) established with NABARD and other Funds with NABARD/NHB/SIDBI/ MUDRA Ltd., as decided by the Reserve Bank from time to time.

The interest rates on banks’ contribution to RIDF or any other Funds, tenure of deposits, etc. shall be fixed by Reserve Bank of India from time to time.