Revised Priority Sector Lending Guidelines

Revised Priority Sector Lending Guidelines

Part of: GS Prelims and GS-III- Banking; Economy

In news

• Recently, the RBI released revised Priority Sector Lending (PSL) guidelines.
• The guidelines align with emerging national priorities and also bring sharper focus on inclusive development.

New additions to Priority Sector Lending (PSL) sectors

• Bank finance to start-ups up to Rs. 50 crore. 
• Loans to farmers for installation of solar power plants for solarisation of grid connected agriculture pumps and loans for setting up Compressed BioGas plants.
• Higher credit limit for Farmers Producers Organisations (FPOs) undertaking farming with assured marketing of their produce at a predetermined price.
• The credit limits for renewable energy, health infrastructure, including the projects under ‘Ayushman Bharat’, have been doubled.
• It seeks to address the issues concerning regional disparities in the flow of priority sector credit at district level which includes:
• Ranking districts on the basis of per capita credit flow to the priority sector.
• Building an incentive framework for districts with comparatively low flow of credit and a dis-incentive framework for districts with comparatively high flow of priority sector credit.
• Higher weightage has been assigned to priority sector credit in ‘identified districts’ where priority sector credit flow is comparatively low

Important value additions

Priority Sector Lending

• The RBI mandates banks to lend a certain portion of their funds to specified sectors, like agriculture, Micro, Small and Medium Enterprises (MSMEs), export credit, education, housing, social infrastructure, renewable energy among others.
• All scheduled commercial banks and foreign banks (with a sizable presence in India) are mandated to set aside 40% of their Adjusted Net Bank Credit (ANDC) for lending to these sectors.
• Regional rural banks, co-operative banks and small finance banks have to allocate 75% of ANDC to PSL.
• The idea behind this is to ensure that adequate institutional credit reaches some of the vulnerable sectors of the economy, which otherwise may not be attractive for banks from the profitability point of view.