Context: The Reserve Bank issued revised guidelines on Priority Sector Lending (PSL) to facilitate better targeting of bank credit to the priority sectors of the economy. The new guidelines will come into effect from April 1, 2025, the RBI said.

Background:

• The major changes include the enhancement of several loan limits, including housing loans for enhanced PSL coverage, and the broadening of the purposes based on which loans may be classified under ‘renewable energy.’
• There is also a revision of the overall PSL target for urban cooperative banks (UCBs) to 60% of Adjusted Net Bank Credit (ANBC) or Credit Equivalent of Off-Balance Sheet Exposures (CEOBSE), whichever is higher. The revised norms also expand the list of eligible borrowers under the category of Weaker Sections.

Key Points

• Priority Sector Lending (PSL) is a policy initiative by the Reserve Bank of India (RBI) aimed at ensuring that certain sectors of the economy receive adequate credit. These sectors are considered crucial for economic development and include agriculture, micro, small, and medium enterprises (MSMEs), education, housing, renewable energy, and weaker sections of society.

Key Features of PSL

• Targets: Banks are required to allocate a specific percentage of their Adjusted Net Bank Credit (ANBC) or Credit Equivalent of Off-Balance Sheet Exposures (CEOBSE) to priority sectors. For example, commercial banks must allocate 40% of their ANBC to PSL.
  • Categories: PSL covers various categories such as:
  • Agriculture: Loans for farmers, agricultural infrastructure, and allied activities.
  • MSMEs: Credit for small businesses and startups.
  • Export Credit: Loans to exporters.
  • Education: Loans for students pursuing higher education.
  • Housing: Loans for affordable housing projects.
  • Renewable Energy: Financing for solar, wind, and other clean energy projects.
  • Weaker Sections: Loans for economically disadvantaged groups.
• Monitoring and Penalties: Banks are monitored for compliance, and penalties are imposed for failing to meet PSL targets.

Source: Money Control