Priority Sector Lending (PSL)
Priority Sector Lending (PSL)
Priority Sector Lending (PSL) is a significant concept in the Indian banking and financial sector, mandated by the Reserve Bank of India (RBI). It refers to the practice where banks are required to provide a specified portion of their loans to specified sectors that are considered as “priority” by the RBI. The main aim of PSL is to ensure that adequate institutional credit reaches some of the vulnerable sectors of the economy, which might not be attractive for banks from a profitability perspective but are crucial for nation-building and inclusive economic development.
Objectives of Priority Sector Lending:
- Inclusive Growth: To ensure that all sectors of the economy, especially the underprivileged and underserved sections, get adequate financial services.
- Balanced Development: To promote balanced development across various sectors and regions of the country.
- Employment Generation: To support sectors that have the potential to create more employment opportunities.
- Support for Weak Sectors: To provide financial support to sectors that are important for the socio-economic development but may not get timely and adequate credit under normal bank lending conditions.
Categories under Priority Sector:
The RBI has defined certain categories under the priority sector, and these have been revised from time to time to reflect the changing economic priorities. Categories include:
- Agriculture: This includes direct and indirect finance to agriculture.
- Micro, Small and Medium Enterprises (MSMEs): Financing to MSMEs engaged in the manufacture, trading, and services.
- Export Credit: Short-term credit provided to exporters.
- Education: Loans to individuals for educational purposes, including vocational courses.
- Housing: Loans provided for the construction of houses, especially for the economically weaker sections and low-income groups.
- Social Infrastructure: Financing for building social infrastructure like schools, healthcare facilities, drinking water facilities, and sanitation facilities in Tier II to Tier VI centers.
- Renewable Energy: Loans for renewable energy projects including solar power, wind power, biomass, and hydropower projects.
- Others: This includes loans to distressed individuals for repayment of debts to non-institutional lenders, loans to self-help groups, etc.
Targets and Sub-targets:
The RBI has set specific targets and sub-targets for banks for lending to the priority sector. For example, commercial banks are required to allocate 40% of their Adjusted Net Bank Credit (ANBC) or Credit Equivalent Amount of Off-Balance Sheet Exposure, whichever is higher, to the priority sector. There are also sub-targets within this overall target for categories like agriculture, micro-enterprises, and advances to weaker sections.
