Priority Sector Lending- Categories & Target
What is Priority sector lending (PSL)?
PSL is lending to those sectors of the economy which may not otherwise receive timely and adequate credit facilities. Reserve Bank of India assigns this role to the banks for providing a specified portion of the bank lending to few specific categories as described below. It aims to an all-round development of the economy instead of focusing only on the financial sector.
The categories under priority sector are as follows:
- Agriculture
- Micro, Small and Medium Enterprises
- Export Credit
- Education
- Housing
- Social Infrastructure
- Renewable Energy
- Others
Targets /Sub-targets for Priority sector
The targets and sub-targets set under priority sector lending is computed based on the ANBC/ CEOBE as applicable as on the corresponding date of the preceding year.
Categories Domestic commercial banks (excl. RRBs & SFBs) & foreign banks with 20 branches and above Foreign banks with less than 20 branches Regional Rural Banks Small Finance Banks Total Priority Sector 40% of ANBC or CEOBE whichever is higher 40% of ANBC or CEOBE whichever is higher; out of which up to 32% can be in the form of lending to Exports and not less than 8% can be to any other priority sector 75% of ANBC or CEOBE whichever is higher; However, lending to Medium Enterprises, Social Infrastructure and Renewable Energy shall be reckoned for priority sector achievement only up to 15% of ANBC. 75% of ANBC or CEOBE whichever is higher. Agriculture 18% of ANBC or CEOBE, whichever is higher; out of which a target of 10 percent is prescribed for Small and Marginal Farmers (SMFs) Not applicable 18% of ANBC or CEOBE, whichever is higher; out of which a target of 10 percent is prescribed for SMFs 18% of ANBC or CEOBE, whichever is higher; out of which a target of 10 percent is prescribed for SMFs Micro Enterprises 7.5% of ANBC or CEOBE, whichever is higher Not applicable 7.5% of ANBC or CEOBE, whichever is higher 7.5% of ANBC or CEOBE, whichever is higher Advances to Weaker Sections 12% of ANBC or CEOBE, whichever is higher Not applicable 15% of ANBC or CEOBE, whichever is higher 12% of ANBC or CEOBE, whichever is higher
Categories Primary Urban Co-operative Bank Total Priority Sector 40% of ANBC or CEOBE, whichever is higher, which shall stand increased to 75% of ANBC or CEOBE, whichever is higher, with effect from March 31, 2024. Micro Enterprises 7.5% of ANBC or Credit Equivalent Amount of Off-Balance Sheet Exposure, whichever is higher Advances to Weaker Sections 12% of ANBC or credit equivalent amount of Off-Balance Sheet Exposure, whichever is higher.
ANBC: Adjusted Net Bank CreditCredit,
CEOBE: Equivalent of Off-Balance Sheet Exposure
Description of Eligible Categories Under Priority Sector
- Agriculture Sector: The lending to agriculture sector includes:
Farm Credit (Agriculture and Allied Activities)
- Individual or group of farmers, and Proprietorship firms of farmers, directly engaged in Agriculture and Allied Activities, viz. dairy, fishery, animal husbandry, poultry, beekeeping, and sericulture. It includes Crop loans including loans for traditional/non-traditional plantations, horticulture and allied activities, Medium and long-term loans for agriculture and allied activities, loans for pre and post-harvest activities, loans to distressed farmers indebted to non-institutional lenders, Kisan Credit Card Scheme, loans to small and marginal farmers for purchase of land for agricultural purposes and lending for Agriculture Infrastructure and Ancillary Activities. (Note: UCBs are not permitted to lend to co-operatives of farmers).
- Small and Marginal Farmers (SMFs): SMFs include farmers with landholding of up to 1 hectare (Marginal Farmers), Farmers with a landholding of more than 1 hectare and up to 2 hectares (Small Farmers), Landless agricultural labourers, tenant farmers, oral lessees and sharecroppers whose share of landholding is within the limits prescribed for SMFs. Loans to Self Help Groups (SHGs) or Joint Liability Groups (JLGs), Loans to FPOs/FPC of individual farmers and co-operatives of farmers directly engaged in Agriculture and Allied Activities.
- Micro, Small and Medium Enterprises (MSMEs)
- A micro, where the investment in plant and machinery or equipment does not exceed Rs.1 crore and turnover does not exceed Rs.5 crore; a small enterprise, where the investment in plant and machinery or equipment does not exceed Rs.10 crore and turnover does not exceed Rs.50 crore, and a medium enterprise, where the investment in plant and machinery or equipment does not exceed Rs.50 crore and turnover does not exceed Rs.250 crore.
- Khadi and Village Industries Sector (KVI): 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.
- Other Finance to MSMEs: Loans up to ₹50 crore to Start-ups, Loans to entities involved in assisting the decentralized sector in the supply of inputs and marketing of output of artisans, village and cottage industries, Loans to co-operatives of producers in the decentralized sector viz. artisans, village and cottage industries (Not applicable for UCBs), Loans sanctioned by banks to NBFC-MFIs and other MFIs (Societies, Trusts etc.) which are members of RBI recognised SRO for the sector for on-lending to MSME sector (not applicable to RRBs, SFBs and UCBs), Loans to registered NBFCs (other than MFIs) for on-lending to Micro & Small Enterprises as per conditions specified (not applicable to RRBs, SFBs and UCBs), Credit outstanding under General Credit Cards (including Artisan Credit Card, Laghu Udyami Card, Swarojgar Credit Card and Weaver’s Card etc. in existence and catering to the non-farm entrepreneurial credit needs of individuals), Overdraft to Pradhan Mantri Jan-Dhan Yojana (PMJDY) account holders as per limits and conditions prescribed by Department of Financial Services, will qualify as achievement of the target for lending to Micro Enterprises, Outstanding deposits with SIDBI and MUDRA Ltd. on account of priority sector shortfall.
- 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:
Domestic banks / WoS of Foreign banks/ SFBs/ UCBs Foreign banks with 20 branches and above Foreign banks with less than 20 branches Incremental export credit over corresponding date of the preceding year, up to 2% of ANBC or CEOBE whichever is higher, subject to a sanctioned limit of up to ₹ 40 crore per borrower. Incremental export credit over corresponding date of the preceding year, up to 2% of ANBC or CEOBE whichever is higher. Export credit up to 32% of ANBC or CEOBE whichever is higher.
- Education
- Loans to individuals for educational purposes, including vocational courses, not exceeding ₹ 20 lakh will be considered as eligible for priority sector classification.
- Housing
- 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).
- 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.
- 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/FSI for dwelling units with carpet area of not more than 60 sq.m.
- 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.
- 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. and 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.
- 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.
- Others
The following loans as per the prescribed limits are eligible for priority sector classification:
- Loans provided directly by banks to individuals and individual members of SHG/JLG satisfying the criteria as prescribed in Regulatory Framework for Microfinance Loans Directions.
- Loans not exceeding ₹2.00 lakh provided 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 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.
- Loans sanctioned to State Sponsored Organisations for Scheduled Castes/ Scheduled Tribes for the specific purpose of purchase and supply of inputs and/or the marketing of the outputs of the beneficiaries of these organisations.
- Loans up to ₹50 crore to Start-ups, as per definition of Ministry of Commerce and Industry, Govt. of India that are engaged in activities other than Agriculture or MSME.
- Weaker Sections
Priority sector loans to the following borrowers will be considered as lending under Weaker Sections category:
- Small and Marginal Farmers
- Artisans, village, and cottage industries where individual credit limits do not exceed ₹1 lakh.
- Beneficiaries under Government Sponsored Schemes such as National Rural Livelihood Mission (NRLM), National Urban Livelihood Mission (NULM) and Self Employment Scheme for Rehabilitation of Manual Scavengers (SRMS)
- Scheduled Castes and Scheduled Tribes
- Beneficiaries of Differential Rate of Interest (DRI) scheme
- Self Help Groups
- Distressed farmers indebted to non-institutional lenders
- Distressed persons other than farmers, with loan amount not exceeding ₹1 lakh per borrower to prepay their debt to non-institutional lenders
- Individual women beneficiaries up to ₹1 lakh per borrower (For UCBs, existing loans to women will continue to be classified under weaker sections till their maturity/repayment.)
- Persons with disabilities
- Minority communities as may be notified by Government of India from time to time.
- Overdraft availed by PMJDY account holders as per limits and conditions prescribed by Department of Financial Services, Ministry of Finance from time to time may be classified under Weaker Sections.
Frequently Asked Question (FAQ)
Are Foreign Banks with less than 20 branches permitted to buy PSLC-General for achieving the target of 8% of lending to ‘other than exports’?
Not allowed to buy PSLC General for achieving their 8% target of lending to sectors other than exports. However, such banks are allowed to buy PSLC Agriculture, PSLC Micro Enterprises and PSLC Small and Marginal Farmer for the same.
Whether PSL – Weaker Sections or PSL – Export Credit can be traded as PSLCs?
There are only four eligible categories of PSLCs i.e. PSLC General, PSLC Small and Marginal Farmer, PSLC Agriculture & PSLC Micro Enterprises.
What is the expiry date of PSLC?
All PSLCs will be valid till end of FY i.e., March 31st and will expire on next day i.e., April 1st.
Whether PSLCs can be issued for a limited period i.e., for one reporting quarter and multiples thereof?
The duration of the PSLCs will depend on the date of issue with all PSLCs being valid till end of FY i.e. March 31st and expiring on next day i.e. April 1st.
In case of a Partnership firm, if majority of the partners belong to one or the other of the specified minority communities, whether advances granted to such partnership firms can be treated as advances granted to minority communities. Further, in case of Private / Public Ltd. Company, if any of the borrowers belong to Minority Community, can the loan be classified under weaker section category?
“In the case of a partnership firm, if the majority of the partners belong to one or the other of the specified minority communities, advances granted to such partnership firms may be treated as advances granted to minority communities. Further, if the majority beneficial ownership in a partnership firm belongs to the minority community, then such lending can be classified as advances to the specified communities. A company has a separate legal entity and hence advances granted to it cannot be classified as advances to the specified minority communities.”
If a student avails two education loans after September 4, 2020, for ₹12 lakhs and ₹18 lakhs, how PSL will be calculated for this particular customer?
Post September 4, 2020, if the aggregate sanctioned limit of multiple education loans either from a bank or across banks to a single borrower exceeds ₹20 lakh limit, all loans of the borrower sanctioned after September 4, 2020, shall become ineligible for PSL classification.
Under revised PSL guidelines, sanctioned limit has been capped at ₹ 20 lakhs for education loan. If a customer is sanctioned a loan of ₹20 lakhs and the outstanding amount becomes ₹22 Lakhs, in such a scenario whether entire outstanding will be reckoned for PSL?
The outstanding value may exceed ₹20 lakh on account of accrued interest due to moratorium on repayment during study period. Accordingly, the entire outstanding amount shall be reckoned for priority sector provided the sanctioned limit does not exceed ₹20 lakh.
What is the permissible cap for export credit under priority sector lending?
Bank lending to export credit under agriculture and MSME sectors is classified as PSL under the respective categories viz, agriculture and MSME and there is no cap on credit for the same. Export Credit (other than in agriculture and MSME) is classified as priority sector as per the following table:
Can loans given to landless individuals engaged in allied activities be classified under priority sector lending (SMF category)?
Bank loans up to ₹2 lakh to individuals solely engaged in allied activities without any accompanying land holding criteria are entitled for classification under SMF category of priority sector lending. Further, farmers availing loans under SMF (based on land holding) are also eligible for loans under allied activities upto ₹2 lakhs and the same can also be classified under SMF category.