Priority sector lending target and sub-target norms explained

Priority sector lending is lending to those sectors of the economy that may not otherwise receive timely and adequate credit. These sectors of the economy are identified by the Government of India and the Reserve Bank of India which consider them as important for the development of the basic needs of the country and are to be given priority over other sectors. The total target and sub-targets set by RBI under priority sector lending for all scheduled commercial banks operating in India is 40 percent of Adjusted Net Bank Credit or Credit Equivalent Amount of Off-Balance Sheet Exposure, whichever is higher.     The provisions of directions of RBI on priority sector advances shall apply to every Scheduled Commercial Bank {excluding Regional Rural Banks (RRBs) and Small Finance Banks (SFBs)} licensed to operate in India by the Reserve Bank of India.
[Note: On-lending means loans sanctioned by banks to eligible intermediaries for onward lending only for the creation of priority sector assets. The average maturity of priority sector assets thus created should be broadly co-terminus with the maturity of the bank loan. Off-balance sheet interbank exposures are excluded for computing Credit Equivalent of Off-Balance Sheet Exposures for the priority sector targets.]

Agriculture: A target of 18 percent of ANBC or Credit Equivalent Amount of Off-Balance Sheet Exposure, whichever is higher has been prescribed for agricultural advance. Within the 18 percent target for agriculture, a target of 8 percent of ANBC or Credit Equivalent Amount of Off-Balance Sheet Exposure, whichever is higher is prescribed for Small and Marginal Farmers. The distinction between direct and indirect agriculture is now dispensed with. Bank loans to food and agro-processing units will form part of Agriculture. Additionally, domestic banks are directed to ensure that the overall lending to non-corporate farmers does not fall below the system-wide average of the last three years’ achievement.

 MSME: A target of 7.5 percent of ANBC or Credit Equivalent Amount of Off-Balance Sheet Exposure, whichever is higher, has been prescribed for Micro Enterprises, to be achieved in a phased manner. The currently applicable loan limits of ₹ 5 crores and ₹ 10 crores per borrower to Micro and  Small and Medium Enterprises (Services) respectively, for classification under priority sector, are now removed. Consequently, all bank loans to MSMEs, engaged in providing or rendering services as defined in terms of investment in equipment under the MSMED Act, 2006, shall qualify under the priority sector without any credit cap. All loans to units in the KVI sector will be eligible for classification under the sub-target of 7.5 per cent prescribed for Micro Enterprise under the priority sector.

Weaker Section: There is no change in the target of 12 percent of ANBC or Credit Equivalent Amount of Off-Balance Sheet Exposure, whichever is higher, for Weaker Sections.

Export credit: Incremental export credit over the corresponding date of the preceding year, up to 2 percent of ANBC or Credit Equivalent Amount of Off-Balance Sheet Exposure, whichever is higher, effective from April 1, 2015, is classified under priority sector segment subject to a sanctioned limit of up to ₹40 crores per borrower to units having turnover of up to ₹100 crores. Foreign banks with less than 20 branches have to achieve the total Priority Sector Target of 40 percent 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.

The target for Foreign Banks: Export credit up to 32 percent of ANBC or Credit Equivalent Amount of Off-Balance Sheet Exposure, whichever is higher, will be eligible as part of the priority sector for foreign banks with less than 20 branches. For other banks, the incremental export credit over the corresponding date of the preceding year will be reckoned up to 2 percent of ANBC or Credit Equivalent Amount of Off-Balance Sheet Exposure, whichever is higher. Foreign banks with less than 20 branches will move to a Total Priority Sector Target of 40 percent of ANBC or Credit Equivalent Amount of Off-Balance Sheet Exposure, whichever is higher, on par with other banks by 2019-20, and the sub-targets for these banks, if to be made applicable post-2020, would be decided in due course.

Housing Loan: The loan limits for housing loans and MFI loans qualifying under the priority sector have been revised. RBI on 06.06.2018 revised the housing loan limits for priority sector lending from the existing limit of Rs.28 lakhs to Rs.35 lakhs in Metropolitan Centers provided the overall cost of dwelling units is not Rs.45 lakhs. The limit for other centers for classification of priority sector lending is increased from the existing limit of Rs.20 lakhs to Rs.25 lakhs provided the overall cost of dwelling units is not Rs.30 lakhs.

The revised guidelines are operational with effect from the date of the RBI circular dated April 23, 2015. The priority sector loans sanctioned under the guidelines issued before the above date will continue to be classified under the priority sector till repayment/maturity/renewal.

On September 4, 2020, RBI announced that PSL guidelines have been comprehensively reviewed to align it with emerging national priorities and bring a sharper focus on inclusive development, after having wide-ranging discussions with all stakeholders. “Revised PSL guidelines will enable better credit penetration to credit deficient areas; increase the lending to small and marginal farmers and weaker sections; boost credit to renewable energy, and health infrastructure,” it said. To know the salient feature of new guidelines read:
RBI REVISES PRIORITY SECTOR LENDING (PSL) GUIDELINES, FRESH CATEGORIES INCLUDED

Regional Rural Banks have to achieve the total Priority Sector Target of 75 percent 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 percent of ANBC.

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