RBI Revises PSL (Priority Sector Lending) Framework

Priority sector lending (PSL), socially directed lending, direct credit, is Reserve Bank Of India (RBI) mandate to banks for lending a percentage of their loans to crucial, unreserved sectors and social infrastructures. This is to ensure that vulnerable sections of society and underdeveloped areas get access to credit, contributing to all round development of the economy.

How do banks currently meet PSL Targets?

Banks meet PSL Targets through: 

1. Direct lending

Loans are directly disbursed to priority sectors, like agriculture, micro-enterprises, education, housing and social infrastructure.

2. Co-lending

Banks partners with NBFCs ( Non-Banking Financial Companies ) and Micro Finance Institutions to co-originate loans to tier 2 and tier 3 cities.

3. Purchasing of PSL Certificates

Banks purchase PSL Certificates from other financial institutions which have exceeded their targets.

4. Targeted Financing

Under target financing, the bank focuses on sub-targets such as small and marginal farmers.

5. Investment In Funds

To meet the target banks deposit the shortfalls to funds like,  the Rural Infrastructure Development Fund (RIDF), SIDBI, NHB, MUDRA etc.

Whom Do Banks Lend Under Priority Sector Lending (PSL)?

• Agriculture and allied sectors, including small and marginal farmers, self help groups (SHGs), and rural enterprises.
• MSMEs ( Micro, Small, Medium Enterprises)
• For Housing Loans in Rural and Underdeveloped areas.
• Education Loans, with prescribed upper limit.
• Renewable Energy Projects 
• Social Infrastructure ( Health Industry, etc) and Micro Finance.

Key Features of Latest RBI PSL Guidelines

• RBI Requires banks to receive certification from external auditors.
• The PSL target for Small Finance Bank (SFBs) has been adjusted from 75% to 60% of their Adjusted Net Bank Credit (ANBC).
• RBI has officially classified loans from banks to NCDC ( National Cooperative Development Corporation) for on-lending to cooperative societies as Priority Sector Lending (PSL).
• Banks can co-lend to meet PSL targets. 
• Export Credit to Agriculture and MSMEs by banks are to be treated as PSL Loans.

Types Of PSL Targets For Different types of Banks

• Domestic commercial bank and foreign banks with 20 branches and above: 40% of ANBC or CEOBE, whichever is higher.
• Foreign banks with less than 20 branches: 40% of ANBC or CEOBE, whichever is higher. ( 32% can be in the form of export credit and not less than 8% can be in any priority sector)
• Regional Rural Banks: 75% of ANBC or CEOBE, whichever is higher. (15% of ANBC for lending to medium enterprises, social infrastructure, and renewable energy)

Abbreviations:

• ANBC: Adjusted Net Bank Credit
• CEOBE: Credit Equivalent of Off-Balance Sheet Exposure
• SIDBI: Small Industries Development Bank Of India
• NHB: National Housing Bank
• MUDRA: Micro Units Development & Refinance Agency Ltd.

Sources:

DD News, Financial Express, VisionIAS, Wikipedia, Stable Money