Priority  Sector Lending

Why in News?

The Reserve Bank of India (RBI) has recently tightened priority sector lending (PSL) norms for foreign banks in India.



Priority Sector Lending

Priority sector lending (PSL) is aimed to provide institutional credit to those sectors and segments for whom it is difficult to get credit. According to priority sector norms, scheduled commercial banks have to give 40% of their loans (measured in terms of Adjusted Net Bank Credit or ANBC) to the identified priority sectors in accordance with the RBI regulations.


Banks (SCBs) having shortfall in lending to priority sector/subsectors are required to contribute to the funds of Rural Infrastructure Development Fund (RIDF) and similar funds set up with National Bank of Agriculture and Rural Development (NABARD) / Small Industries Development Bank of India (SIDBI) / National Housing Bank (NHB).


In April 2016, RBI has introduced Priority Sector Lending Certificates so that banks can trade the loan certificates given to the different sectors to meet their targets.


Categories under priority sector

(i) Agriculture

(ii) Micro, Small and Medium Enterprises

(iii) Export Credit

(iv) Education

(v) Housing

(vi) Social Infrastructure

(vii) Renewable Energy

(viii) Others


New Norms

Foreign banks with more than 20 branches in India will now be required to extend a portion of their loans to small and marginal farmers as well as micro-enterprises from the fiscal year 2018-19, as per the respective sub-sectoral targets. Those with less than 20 branches will also need to fulfil the overall PSL norms of 40% of adjusted net bank credit (ANBC) in a phased manner by 2020.