QA Series 01 - PSL Part 01

 

The Banking Tutor

Question Answer Series 2025

S No 01                                                                    01-06-2025

Priority Sector Lending (PSL) – Part 01

 

01. Why RBI fix targets for Priority Sector Lending (PSL) ? 

The RBI mandates priority sector lending (PSL) targets for banks to ensure that certain sectors, crucial for economic development and inclusive growth, receive adequate credit. This aims to address credit shortages, promote regional balance, and support marginalized sections of society. 

02. What is meant by Allied Activity in relation to PSL? 

Allied activities i.e. activities allied to agriculture shall include dairy, fisheries, animal husbandry, poultry, bee-keeping, sericulture and similar activities. 

03. Who are Non-Corporate Farmers (NCF) ? 

Non-Corporate Farmers (NCF) shall include individual farmers including Small and Marginal Farmers (SMFs), proprietorship firms of farmers directly engaged in agriculture and allied activities, and Self-Help Groups (SHGs) or Joint Liability Groups (JLGs) i.e., group of individual farmers, provided banks maintain disaggregated data of such loans. 

04. What is meany by On-lending ? Can we classify such loans under PSL ? 

“On-lending” means loans sanctioned by banks to eligible intermediaries for onward lending. Such loans, extended for creation of priority sector assets and which remain deployed in such assets, will be eligible for classification under PSL.

05. "Will loans originally classified under PSL remain PSL if classification norms change later?" 

All loans categorised as Priority Sector Lending (PSL) under the erstwhile Master Directions on PSL shall continue to be eligible for such categorisation under these Directions till maturity. 

06. Whether PSL is applicable to Non Fund Based Loan Products ? 

Contingent liabilities/off-balance sheet items do not form part of priority sector achievement. Off-balance sheet interbank exposures are excluded for computing CEOBSE for the priority sector targets. 

07. What are different categories under PSL ? 

The Categories under Priority Sector are (1) Agriculture (2) Micro, Small and  Medium  Enterprises  (3) Export Credit  (4) Education  (5) Housing (6) Social Infrastructure (7) Renewable Energy (8) Others. 

08. What is the basis to compute 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/CEOBSE as applicable as on the corresponding date of the preceding year. (Targets are as percentage of ANBC or CEOBSE, whichever is higher),

 

09. What is the Target for Total Lending to  Priority Sector ? 

Total Priority Sector      40% of ANBC or CEOBSE, whichever is higher. 

10. What is the Target for Agriculture Lending ? 

Agriculture 18 of ANBC or CEOBSE, whichever is higher. 

11. Is there any target for lending to Non Corporate Farmers ( NCF) ? 

Yes. Within target of 18% to Total Agriculture , 14 % is prescribed for NCFs, out of which 10 % is prescribed for SMFs. 

12. Is there any target for Industrial advances ? 

No specific target for Industry or MSME. However, target is fixed for lending to Micro Enterprises. 

13. What is a Micro Enterprise ? 

Enterprise with Investment upto Rs 2.50 crores and turnover upto Rs 10 Crores is classified as Micro Enterprise. (Union Budget 2025) 

14. What is the Target for Lending to  Micro Enterprises ? 

7.5 % of ANBC or CEOBSE, whichever is higher 

15.  What is the Target for Lending to Weaker Sections? 

12 % of ANBC or CEOBSE, whichever is higher 

16. Why Weightages are included in deciding achievement of PSL target ? 

Adjustments for weights in PSL Achievement - To address regional disparities in the flow of priority sector credit at the district level, it was 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. 

17. What is a Credit Starved District ? 

RBI identifies districts with per capita priority sector lending below a certain threshold (currently ₹9,000 for 2024-25) 

18. What is weightage given to Credit Starved Districts ? 

With effect from FY 2024-25, a higher weight (125%) shall be assigned to the incremental priority sector credit in the identified districts where the credit flow is comparatively lower (per capita PSL less than ₹9,000) 

19. What is weightage given to Districts where per capita PSL is more than Rs 9000 but less than Rs 42000? 

100% 

20. What is weightage given to Districts where per capita PSL is more than Rs 42000? 

90% 

21. What are Weaker Sections for PSL ? 

S  and M Farmers; Beneficiaries under Government Sponsored Schemes ; SC/ST; DRI borrowers; SHG/JLGs; Members of SHGs/JLGs, satisfying criteria Prescribed;

Individual women up to ₹2 lakh per borrower ; 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; Persons with disabilities; Transgenders ; Minority communities ; Overdraft availed by PMJDY account holders and Artisans, village and cottage industries where individual credit limits do not exceed ₹2 lakh.

 

22. Who is a Small Farmer ? 

Farmers with a landholding of more than 1 hectare and up to 2 hectares are classified as Small Farmers. 

23. Who is a Marginal Farmer ? 

Farmers with landholding of up to 1 hectare are classified as Marginal Farmers. 

24. What are Minority Communities for PSL ? 

Muslims, Christians, Sikhs, Buddhists and Zoroastrians (Parsis) and Jains. 

25. Can we treat Export Credit under PSL ? 

Incremental Export Credit (other than that classified under agriculture and (MSME) shall be eligible for classification as priority sector lending over corresponding date of the preceding year, up to 2 % of ANBC or CEOBSE whichever is higher, subject to a sanctioned limit of up to ₹ 50 crore per borrower. 

26. Can we treat Education loans under PSL ? 

Education Loans to individuals  including vocational courses, not exceeding ₹25 lakh will be considered as eligible for priority sector classification. 

Next part will be shared on 3^rd June 2025 

Sekhar Pariti

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