The Reserve Bank of India (RBI) has recently published revised guidelines on Priority Sector Lending (PSL). These adjustments reflect emerging national priorities and also magnify focus on inclusive development. The last review for PSL instructions occurred in April 2015 for commercial banks, and in May 2018 for Urban Co-operative Banks.
Revised Guidelines and Fresh Categories
The newly unveiled guidelines include fresh categories for bank finance, making start-ups eligible for up to Rs. 50 crore in loans. Other additions comprise loans for farmer-installed solar power plants for grid connected agriculture pumps and loans for the establishment of Compressed BioGas plants.
Specifications for Farmers
The updated guidelines also put forth a higher credit limit for Farmer Producers Organisations (FPOs), provided they conduct farming with guaranteed marketing of their produce at a pre-set price. These loans will be subject to an aggregate limit of Rs. 2 crore per borrowing entity. RBI now identifies farmers with land holdings of up to one hectare as marginal farmers, while those with land holdings larger than one hectare and up to 2 hectares are categorised as small farmers.
Advancing Credit Limits
Further enhancements to the lending framework include doubled credit limits for renewable energy and health infrastructure, featuring projects under ‘Ayushman Bharat.’ Individual households can receive loan limits of up to Rs. 10 lakh per borrower for purposes including solar-based and biomass-based power generators, windmills, non-conventional energy-based public utilities, and others.
Addressing Regional Disparities
The updated PSL guidelines also aim to balance regional disparities in district-level priority sector credit flow. It proposes to rank districts based on per capita credit flow towards the priority sector and construct a reward framework for districts with relatively low credit flow. Additionally, it seeks to place a penalty framework for districts with high priority sector credit flow.
Benefits of the Revised Guidelines
The revised PSL guidelines are designed to improve credit penetration to under-served regions, enhance lending to small and marginal farmers and weaker sections of society, and propel credit towards renewable energy and health infrastructure sectors.
About Priority Sector Lending (PSL)
RBI mandates banks to allocate a certain portion of their capital for lending to specified sectors such as agriculture, Micro, Small and Medium Enterprises (MSMEs), export credit, education, housing, social infrastructure, renewable energy among others. All scheduled commercial banks, foreign banks with a significant presence in India, regional rural banks, cooperative banks, and small finance banks are required to set aside a percentage of their Adjusted Net Bank Credit (ANDC) for lending to these sectors. This policy ensures that adequate institutional credit reaches economically vulnerable sectors that may not traditionally be attractive for banks from a profitability perspective.
