PSL

What is Priority Sector Lending?

 Priority Sector Lending means giving certain fraction of overall loans by a bank to certain
vulnerable sectors as designated by RBI from time to time.
 By vulnerable, we mean that these are small sectors and may not appear attractive to banks to
provide them loans. For example, farmers, small businessmen, students etc. may find it very
difficult to access institutional credit. To make sure that adequate institutional credit flows into
these sectors, RBI sets aside some targets for the banks, which are called Priority Sector Lending
Targets.
What is history of Priority Sector Lending?

 Priority Sector was defined for the first time in 1972 by Dr. K S Krishnaswamy Committee.
 This committee defined PSL only after the National Credit Council emphasizes that there needs
to be a larger involvement of the commercial banks in the priority sector.
 For the first time, RBI set 33.33% share of their total loans to priority sector. Thus, priority sector
lending in India is there since 1974.
National Credit Council set up to provide a forum to discuss and assess
22 Dec
credit priorities on an all India basis. Council was to assist RBI and
1967
government to allocate credit.

What are different broad sectors under Priority Sector Lending?
As of now RBI has divided all legible PSL sectors into eight broad categories. These are:
1. Agriculture

2. Micro, Small and Medium Enterprises

3. Export Credit

4. Education

5. Housing

6. Social Infrastructure

7. Renewable Energy

8. Other Sectors(Weaker Sections)

 RBI revised PSL targets on 04-sep-2020, The revised guidelines also aim to
encourage and support environment friendly lending policies to help achieve
Sustainable Development Goals (SDGs). This review also took into account the
recommendations made by the ‘Expert Committee on Micro, Small and Medium
Enterprises (Chairman: Shri U.K. Sinha) and the ‘Internal Working Group to
Review Agriculture Credit’ (Chairman: Shri M. K. Jain), Further, these Master
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Directions encompass the revised guidelines on PSL for all Commercial banks,
RRBs, SFBs, UCBs and LABs.
ANBC: Adjusted Net Bank Credit

CEOBE: Credit Equivalent of Off-Balance Sheet Exposures

Targets /Sub-targets for Priority sector

The targets and sub-targets set under priority sector lending, to be computed on the basis of the ANBC/
CEOBE as applicable as on the corresponding date of the preceding year, are as under:

Domestic
commercial banks
Foreign banks with
(excl. RRBs & SFBs) Regional Rural Small Finance
Categories less than 20
& foreign banks with Banks Banks
branches
20 branches and
above
Total Priority 40 per cent of ANBC 40 per cent of ANBC 75 per cent of ANBC 75 per cent of
Sector or CEOBE whichever or CEOBE whichever or CEOBE whichever ANBC or
is higher is higher; out of is higher; However, CEOBE
which up to 32% can lending to Medium whichever is
be in the form of Enterprises, Social higher.
lending to Exports Infrastructure and
and not less than 8% Renewable Energy
can be to any other shall be reckoned for
priority sector priority sector
achievement only up
to 15 per cent of
ANBC.
Agriculture 18 per cent of ANBC Not applicable 18 per cent ANBC or 18 per cent of
or CEOBE, whichever CEOBE, whichever is ANBC or
is higher; out of which higher; out of which a CEOBE,
a target of 10 target of 10 percent is whichever is
percent is prescribed prescribed for SMFs higher; out of
for Small and which a target
Marginal Farmers of 10 percent# is
(SMFs) prescribed for
SMFs
Micro 7.5 per cent of ANBC Not applicable 7.5 per cent of ANBC 7.5 per cent of
Enterprises or CEOBE, whichever or CEOBE, whichever ANBC or
is higher is higher CEOBE,
whichever is
higher
Advances to 12 percent of ANBC Not applicable 15 per cent of ANBC 12 percent of
Weaker or CEOBE, whichever or CEOBE, whichever ANBC or
Sections is higher is higher CEOBE,
whichever is
higher
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Categories Primary Urban Co-operative Bank

Total Priority 40 per cent of ANBC or CEOBE, whichever is higher,
Sector which shall stand increased to 75 per cent of ANBC or
CEOBE, whichever is higher, by March 31, 2024. UCBs
shall comply with the stipulated target as per the following
milestones:
March 31, March 31, March March
2021 2022 31, 2023 31, 2024
45% 50% 60% 75%
Micro 7.5 per cent of ANBC or Credit Equivalent Amount of Off-
Enterprises Balance Sheet Exposure, whichever is higher
Advances to
12 per cent of ANBC or credit equivalent amount of Off-
Weaker
Balance Sheet Exposure, whichever is higher.
Sections

The targets for lending to SMFs and for Weaker Sections shall be revised upwards from
FY 2021-22 onwards as follows:

Revised targets for weaker sections will be implemented in a phased

manner as indicated below
Small and Marginal Farmers Weaker Sections target
Financial Year
target * ^
2020-21 8% 10%
2021-22 9% 11%
2022-23 9.5% 11.5%
2023-24 10% 12%
* Not applicable to UCBs
^ Weaker Sections target for RRBs will continue to be 15% of ANBC or
CEOBE, whichever is higher.

 All domestic banks (other than UCBs) and foreign banks with more than 20
branches are directed to ensure that the overall lending to Non-Corporate
Farmers (NCFs) does not fall below the system-wide average of the last three
years’ achievement which will be separately notified every year.
 The applicable target for lending to the non-corporate farmers for FY 2020-21 will
be 12.14% of ANBC or CEOBE whichever is higher, All efforts should be made
by banks to reach the level of 13.5 percent of ANBC
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Adjustments for weights in PSL Achievement

 To address regional disparities in the flow of priority sector credit at the district
level, it has been decided to rank districts on the basis of per capita credit flow to
priority sector and build an incentive framework for districts with comparatively
lower flow of credit and a dis-incentive framework for districts with comparatively
higher flow of priority sector credit.
 Accordingly, from FY 2021-22 onwards, a higher weight (125%) would be
assigned to the incremental priority sector credit in the identified districts (184)
where the credit flow is comparatively lower (per capita PSL less than ₹6000),
and a lower weight (90%) would be assigned for incremental priority sector credit
in the identified districts (205) where the credit flow is comparatively higher (per
capita PSL greater than ₹25,000).
 This list will be valid for a period up to FY 2023-24 and will be reviewed
thereafter. The districts other than above list will continue to have existing
weightage of 100%.

DESCRIPTION OF ELIGIBLE CATEGORIES UNDER PRIORITY

SECTOR

1. Agriculture

The lending to agriculture sector will include the following 3 categories.

1. Farm Credit (Agriculture and Allied Activities)

2. Lending for Agriculture Infrastructure and

3. Ancillary Activities.

1. Farm Credit - Individual farmers

Loans to individual farmers [including Self Help Groups (SHGs) or Joint Liability Groups
(JLGs) i.e. groups of individual farmers, provided banks maintain disaggregated data of
such loans] and Proprietorship firms of farmers, directly engaged in Agriculture and
Allied Activities, they are dairy, fishery, animal husbandry, poultry, bee-keeping and
sericulture.

This will include:

i. Crop loans including loans for traditional/non-traditional plantations, horticulture and

allied activities.
ii. Medium and long-term loans for agriculture and allied activities (e.g. purchase of
agricultural implements and machinery and developmental loans for allied activities).
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iii. Loans for pre and post-harvest activities viz. spraying, harvesting, grading and
transporting of their own farm produce.
iv. Loans to distressed farmers indebted to non-institutional lenders.
v. Loans under the Kisan Credit Card Scheme.
vi. Loans to small and marginal farmers for purchase of land for agricultural purposes.
vii. Loans against pledge/hypothecation of agricultural produce (including warehouse
receipts) for a period not exceeding 12 months subject to a limit up to ₹75 lakh against
NWRs/eNWRs and up to ₹50 lakh against warehouse receipts other than
NWRs/eNWRs.
viii. Loans to farmers for installation of stand-alone Solar Agriculture Pumps and for
solarisation of grid connected Agriculture Pumps.
ix. Loans to farmers for installation of solar power plants on barren/fallow land or in stilt
fashion on agriculture land owned by farmer.

Farm Credit - Corporate farmers, Farmer Producer

Organisations (FPOs)/(FPC) Companies of Individual
Farmers, Partnership firms and Co-operatives of farmers
engaged in Agriculture and Allied Activities
(a) Loans for the following activities will be subject to an aggregate limit of ₹2 crore per
borrowing entity:

i. Crop loans to farmers which will include traditional/non-traditional plantations and

horticulture and loans for allied activities.
ii. Medium and long-term loans for agriculture and allied activities (e.g. purchase of
agricultural implements and machinery and developmental loans for allied activities).
iii. Loans for pre and post-harvest activities viz. spraying, harvesting, grading and
transporting of their own farm produce.

(b) Loans up to ₹75 lakh against pledge/hypothecation of agricultural produce (including

warehouse receipts) for a period not exceeding 12 months against NWRs/eNWRs and
up to ₹50 lakh against warehouse receipts other than NWRs/eNWRs.

(c) Loans up to ₹5 crore per borrowing entity to FPOs/FPCs undertaking farming with
assured marketing of their produce at a pre-determined price.

(d) UCBs are not permitted to lend to co-operatives of farmers.

2. Agriculture Infrastructure

Loans for agriculture infrastructure will be subject to an aggregate sanctioned limit of

₹100 crore per borrower from the banking system.
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3. Ancillary Services

Following loans under ancillary services will be subject to limits prescribed as under:

i. Loans up to ₹5 crore to co-operative societies of farmers for purchase of the produce of

members (Not applicable to UCBs)
ii. Loans up to ₹50 crore to Start-ups, as per definition of Ministry of Commerce and
Industry, Govt. of India that are engaged in agriculture and allied services.
iii. Loans for Food and Agro-processing up to an aggregate sanctioned limit of ₹100 crore
per borrower from the banking system.

3.1. Small and Marginal Farmers (SMFs)

For the purpose of computation of achievement of the sub-target, Small and Marginal
Farmers will include the following:

i. Farmers with landholding of up to 1 hectare (Marginal Farmers).

ii. Farmers with a landholding of more than 1 hectare and up to 2 hectares (Small
Farmers).
iii. Loans up to ₹2 lakh to individuals solely engaged in Allied activities without any
accompanying land holding criteria.

3.2. Lending by banks to NBFCs and MFIs for on-lending in

agriculture
Bank credit to registered NBFCs (other than MFIs) towards on-lending for ‘Term
lending’ component under agriculture will be allowed up to ₹ 10 lakh per borrower.

2. Micro, Small and Medium Enterprises (MSMEs)

 All loans to units in the KVI sector will be eligible for classification under the sub-
target of 7.5 percent prescribed for Micro Enterprises under priority sector.
 Loans up to ₹50 crore to Start-ups, as per definition of Ministry of Commerce and
Industry, Govt. of India that confirm to the definition of MSME
 Loans sanctioned by banks to NBFC-MFIs and other MFIs (Societies, Trusts
etc.)
 Loans to registered NBFCs (other than MFIs) for on-lending to Micro & Small
Enterprises
 verdraft to Pradhan Mantri Jan-Dhan Yojana (PMJDY) account holders as per
limits and conditions prescribed by Department of Financial Services, Ministry of
Finance from time to time, will qualify as achievement of the target for lending to
Micro Enterprises.
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3. Export Credit (not applicable to RRBs and LABs)

 Export credit under agriculture and MSME sectors are allowed to be classified as
PSL in the respective categories viz. agriculture and MSME.
 Export Credit (other than in agriculture and MSME) will be allowed to be
classified as priority sector as per the following table:

Foreign banks with Foreign banks

Domestic banks / WoS of
20 branches and with less than 20
Foreign banks/ SFBs/ UCBs
above branches
Incremental export credit over Incremental export Export credit up to
corresponding date of the credit over 32 per cent of
preceding year, up to 2 per corresponding date of ANBC or CEOBE
cent of ANBC or CEOBE the preceding year, up whichever is
whichever is higher, subject to to 2 percent of ANBC higher.
a sanctioned limit of up to ₹ 40 or CEOBE whichever
crore per borrower. is higher.

4. Education
 Loans to individuals for educational purposes, including vocational courses, not
exceeding ₹ 20 lakh will be considered as eligible for priority sector classification.
Loans currently classified as priority sector will continue till maturity.

5. Housing
 Bank loans to Housing sector as per limits prescribed below are eligible for
priority sector classification:
 Loans to individuals up to ₹35 lakh in metropolitan centres (with population of ten
lakh and above) and up to ₹25 lakh in other centres for purchase/construction of
a dwelling unit per family provided the overall cost of the dwelling unit in the
metropolitan centre and at other centres does not exceed ₹45 lakh and ₹30 lakh
respectively.
 Housing loans to banks’ own employees will not be eligible for classification
under the priority sector.
 Investments made by UCBs in bonds issued by NHB / HUDCO on or after April
1, 2007 shall not be eligible for classification under priority sector.
 Loans up to ₹10 lakh in metropolitan centres and up to ₹6 lakh in other centres
for repairs to damaged dwelling units conforming to the overall cost of the
dwelling unit.
 PSL

 Bank loans to any governmental agency for construction of dwelling units or for
slum clearance and rehabilitation of slum dwellers subject to dwelling units with
carpet area of not more than 60 sq.m.
 Bank loans for affordable housing projects using at least 50% of FAR(Floor Area
Ratio ) /FSI(Floor Space Index) for dwelling units with carpet area of not more than
60 sq.m.
 This ratio is determined by dividing the built-up area of a building with the total size of the plot.
 Bank loans to HFCs (approved by NHB for their refinance) for on-lending, up to
₹20 lakh for individual borrowers, for purchase/construction/ reconstruction of
individual dwelling units or for slum clearance and rehabilitation of slum dwellers.
 Outstanding deposits with NHB on account of priority sector shortfall.

6. Social Infrastructure:
 Bank loans up to a limit of ₹5 crore per borrower for setting up schools,
drinking water facilities and sanitation facilities including construction/
refurbishment of household toilets and water improvements at household
level, etc.
 loans up to a limit of ₹10 crore per borrower for building health care
facilities including under ‘Ayushman Bharat’ in Tier II to Tier VI centres.
 In case of UCBs, the above limits are applicable only in centres having a
population of less than one lakh.

7. Renewable Energy
 Bank loans up to a limit of ₹30 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 etc., will be eligible for Priority Sector
classification.
 For individual households, the loan limit will be ₹10 lakh per borrower.

8. Others(Advances to weaker section people)

 The following loans as per the prescribed limits are eligible for priority sector
classification:
 Loans not exceeding ₹1.00 lakh per borrower provided directly by banks to
individuals and individual members of SHG/JLG provided the individual
borrower’s household annual income in rural areas does not exceed ₹1.00 lakh.
 PSL

 For non-rural areas loan does not exceed ₹2.0 lakh, and annual income not
exceeding ₹1.60 lakh provided directly by banks to SHG/JLG for activities other
than agriculture or MSME, viz., loans for meeting social needs, construction or
repair of house, construction of toilets or any viable common activity started by
the SHGs.
 Loans to distressed persons [other than distressed farmers indebted to non-
institutional lenders] not exceeding ₹1.00 lakh per borrower to prepay their debt
to non-institutional lenders.

Inter Bank Participation Certificates (IBPCs) (not applicable to UCBs):

The Working Group on the Money Market (Chairman Shri N.Vaghul) had recommended the
introduction of Inter-Bank Participations, with a view to providing an additional instrument for
even out short term liquidity within the banking system.

There will be two types of Participations:

Inter-Bank Participations with Risk Sharing;

Inter-Bank Participations without Risk Sharing.

The Participations would be strictly inter bank confined to scheduled commercial banks.

Inter-Bank Participations with Risk Sharing:

1. Applicability of the Scheme:

The scheme will be confined to scheduled commercial banks.

2. Period of Participations:

The minimum period of such Participation will be 91 days, while the maximum period will
be 180 days.

3. Rate of Interest:

The rate of interest on Participations would be left free to be determined between the issuing
bank and the participating bank, subject to a minimum of 14.0 per cent per annum.

4. Transferability: Participations will not be transferable.

 PSL

Inter-Bank Participations without risk sharing (not applicable to UCBs):

1. Applicability of the scheme:

The scheme will be confined to scheduled commercial banks only.

2. Period of Participation:

The tenure of such Participations will not exceed 90 days.

3. Rate of Interest:

The rate of interest would be determined by the two concerned banks subject to a ceiling of
12.5 per cent per annum.

 IBPCs bought by banks on risk sharing basis relating to ‘Export Credit’, may be
classified from purchasing bank’s perspective for priority sector categorization.
However, in such a scenario, the issuing bank shall certify that the underlying asset is
‘Export Credit’
 RRBs are allowed to issue Inter Bank Participation Certificates (IBPCs) to Scheduled
Commercial Banks in respect of their priority sector advances in excess of 75 per cent
of their outstanding advances.

Priority Sector Lending Certificates - Scheme

i) Purpose: To enable banks to achieve the priority sector lending target and sub-
targets by purchase of these instruments in the event of shortfall and at the same time
incentivize the surplus banks; thereby enhancing lending to the categories under priority
sector.

ii) Nature of the Instruments: The seller will be selling fulfillment of priority sector
obligation and the buyer would be buying the same. There will be no transfer of risks or
loan assets.

iii) Modalities: The PSLCs will be traded through the CBS portal (e-Kuber) of RBI. The
detailed operational instructions for carrying out the trades are available through the e-
Kuber portal.

iv) Sellers/Buyers: Scheduled Commercial Banks (SCBs), Regional Rural Banks

(RRBs), Local Area Banks (LABs), Small Finance Banks (when they become
operational) and Urban Co-operative Banks who have originated PSL eligible category
loans subject to such regulations as may be issued by the Bank.
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v) Types of PSLCs: There would be 4 kinds of PSLCs :–

i) PSLC Agriculture: Counting for achievement towards the total agriculture lending
target.

ii) PSLC SF/MF: Counting for achievement towards the sub-target for lending to Small
and Marginal Farmers.

iii) PSLC Micro Enterprises: Counting for achievement towards the sub target for
lending to Micro Enterprises.

iv) PSLC General: Counting for achievement towards the overall priority sector target.

Bank loans to NBFCs for on-lending (not applicable to RRBs, UCBs,

SFBs and LABs):

 Bank credit to registered NBFCs (other than MFIs) for on-lending will be eligible
for classification as priority sector under respective categories subject to the
following conditions:
 Agriculture: On-lending by NBFCs for ‘Term lending’ component under
Agriculture will be allowed up to ₹ 10 lakh per borrower.
 Micro & Small enterprises: On-lending by NBFC will be allowed up to ₹ 20 lakh
per borrower.
 The above dispensation shall be valid upto September 2021. However, loans
disbursed under the on-lending model will continue to be classified under Priority
Sector till the date of repayment/maturity.

Bank loans to HFCs for on-lending (not applicable to RRBs,

SFBs and LABs):
 Bank credit to Housing Finance Companies (HFCs), approved by NHB for their
refinance, for on-lending for the purpose of purchase/construction/ reconstruction
of individual dwelling units or for slum clearance and rehabilitation of slum
dwellers, subject to an aggregate loan limit of ₹20 lakh per borrower.

Cap on On-lending:
 Bank credit to NBFCs (including HFCs) for on-lending , will be allowed up to an
overall limit of five percent of individual bank’s total priority sector lending.
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COVID19 measures for PSL:

 An on-tap liquidity window of ₹50,000 crore with tenors of up to three
years at the repo rate till March 31, 2022 has been opened to boost
provision of immediate liquidity for ramping up COVID-related healthcare
infrastructure and services in the country.
 Banks are expected to create a COVID loan book under the scheme.
These loans will continue to be classified under priority sector till
repayment or maturity, whichever is earlier.
 A separate liquidity window of ₹15,000 crore with tenors of up to three
years at the repo rate till March 31, 2022 has been opened for certain
contact-intensive sectors i.e., hotels and restaurants; tourism - travel
agents, tour operators and adventure/heritage facilities; aviation ancillary
services - ground handling and supply chain; and other services that
include private bus operators, car repair services, rent-a-car service
providers, event/conference organisers, spa clinics, and beauty
parlours/saloons.
 Banks are expected to create a separate COVID loan book under the
scheme. Banks desirous of deploying their own resources without availing
funds from the RBI under the scheme for lending to the specified
segments mentioned above will also be eligible for this incentive.

Monitoring of Priority Sector Lending targets:

 To ensure continuous flow of credit to priority sector, the compliance of banks will
be monitored on ‘quarterly’ basis. The data on priority sector advances is
required to be furnished by banks to FIDD(Financial Inclusion and Development
Department), Central Office at quarterly and annual intervals.
 In respect of RRBs, the data on priority sector advances, in the above format,
must be furnished to NABARD at quarterly and annual intervals.
 In respect of UCBs, the data on priority sector advances in the reporting formats
shall be furnished at quarterly and annual intervals, to the Regional Office of
Department of supervision, RBI.

Non-achievement of Priority Sector targets:

 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.
 With effect from March 31, 2021, all UCBs will be required to contribute to Rural
Infrastructure Development Fund (RIDF) established with NABARD and other
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funds with NABARD / NHB / SIDBI / MUDRA Ltd., against their priority sector
lending (PSL) shortfall prescribed target.
 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.
 Non-achievement of priority sector targets and sub-targets will be taken into
account while granting regulatory clearances/approvals for various purposes.

Common guidelines for priority sector loans:

 Banks should comply with the following common guidelines for all categories of
advances under the priority sector.
 Rate of interest: The rates of interest on bank loans will be as per directives
issued by Department of Regulation (DoR), RBI from time to time.
 Service charges: No loan related and ad hoc service charges/inspection
charges should be levied on priority sector loans up to ₹25,000.
 In the case of eligible priority sector loans to SHGs/ JLGs, this limit will be
applicable per member and not to the group as a whole.