Priority Sector Lending is the term used to describe a provision made by the Reserve Bank of India whose objective is to channelise funds for specific sectors like agriculture, housing and education.
The Reserve Bank of India had advised to the banks to give priority to lending to weaker sections by setting aside 40% of their total net bank credit towards priority sector advances. This requirement applies to all scheduled commercial banks as well as international banks with a major presence in India.
Cooperative banks, small financing banks and regional rural banks are required to devote 75% of their net bank credit towards PSL.
The primary objective of the plan is to channel funds to the priority sectors, which include small and medium enterprises (SMEs), farmers and fishermen.
The priority sector, as the very name suggests, stands apart from the rest of the sectors as they are giving due importance by the Government of India and RBI.
The priority sector lending classifications and guidelines released by the RBI are intended to align with emerging national priorities and bring a sharper focus on inclusive development, building a consensus among all stakeholders.
The different categories of the priority sector:
Agriculture
Micro, small and medium enterprises
Export credit
Education
Housing
Social infrastructure
Renewable energy and others
The Reserve Bank of India has revised the PSL categories and credit limit. As per the PSL, the new guidelines are:
Bank finance to start-ups up to Rs. 50 crore
Loans for the installation of compressed biogas plants
Loans for farmers for setting up solar power plants.
The limit has increased to 10 crores for Health infrastructure,
The renewable energy limit has increased to 30 crores
Banks can give up to 5 crores of loans for building schools, sanitation, and drinking water facilities.
RBI’s push for priority sector lending is gaining traction as seen from the rising volumes of PSL Certificate trades, which stood at more than 6 lakh crore last fiscal.
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