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RBI Master Directions on Priority Sector Lending (PSL) Targets and Classification

Ashish M. Shaji

| Updated: Sep 22, 2020 | Category: RBI Notification

RBI Master Directions

The Reserve Bank of India has issued Master directions on Priority Sector Lending- targets and classification on 4th September 2020. In this article, we shall take a look at the major changes implemented through the master directions.

The objective of the RBI Master directions on Priority Sector Lending- targets and classification 

The master directions were issued with an objective to harmonize instruction guidelines for commercial banks, small finance banks, Regional Rural Banks, Urban Co-operative Banks, and Local Area Banks; align these guidelines with emerging national priorities, and bring focus on inclusive development. 

The revised guidelines also look to encourage and support environment-friendly lending policies to help in achieving Sustainable development goals.  The objective of this is also to consolidate all concerning circulars to PSL under one master direction.

Targets/sub-targets for priority sector

The targets and sub-targets set under the Priority Sector Lending (PSL) are computed on the percentage basis of Adjusted Net Bank Credit/ Credit Equivalent of Off-Balance Sheet Exposures.

The master directions issued by the Reserve Bank has increased the total PSL target for Urban Co-Operative Banks, which has to be achieved through milestones based targets in a phased manner. Moreover, there has been an increase in targets for advances to weaker sections and Small Farmer Margins in the agriculture sector.

The changes are summarised in the table provided below:

CategoriesDomestic Commercial BanksSmall Finance BanksRRBUCB
Total Priority Sector 
No change No change No change Increase in total priority sector target from 40% to 75% of ANBC/CEOBEWhichever is higher 
Advances to weaker sections TargetIncreased to 12% of ANBC or CEOBE;Whichever is higherIncreased to 12% of ANBC or CEOBE;Whichever is higherNo ChangeIncreased to 12% of ANBC or CEOBE;Whichever is higher
AgricultureTarget  No changeSmall Marginal Farmers target increased to 10 % of the 18% of ANBC or CEOBE;Whichever is higherSmall Marginal Farmers target increased to 10 % of the 18% of ANBC or CEOBE;Whichever is higher   No Target
Micro enterprises No change No change No change No change
          

Inclusion of weights in Priority Sector Lending Achievement

THE adjusted PSL mechanism has been implemented under the new regime to incentivize the flow of credit to underserved districts. There shall be no change in the underlying sectors eligible for PSL; however, an additional weightage has been given to lending to the underserved districts.

Accordingly, from the financial year 2021-22 onwards, a higher weight (125%) will be assigned to incremental priority sector credit in the identified districts where credit flow is comparatively lower, i.e., per capita PSL less than 6000 rupees, and lower weight (90%) will be assigned for incremental priority sector credit in the identified districts where credit flow is comparatively higher, i.e., per capita, PSL is greater than 25000 rupees.

Regional Rural Banks, Urban Co-operative Banks, Local Area Banks, and foreign banks will be exempted from adjustments of weights in PSL achievement owing to their currently limited area of operation.

Inclusion in eligible categories

With the inclusion of fresh categories eligible for finance under the priority sector, there has been an enhancement in the credit limit of the existing categories.

Some of the changes are as mentioned below:

  • Agriculture lending including Farm credit, lending for agriculture infrastructure, and ancillary activities
  1. Loans to farmers for the installation of stand-alone Solar Agriculture Pumps and for solarisation of grid-connected agriculture pumps.
  2. Loans to farmers for solar power plants installation on barren/fallow land or in stilt fashion on agriculture Land of the farmer.
  3. Loans up to 50 crore rupees to startups, according to the definition of the Ministry of Commerce and Industry, engaged in agriculture and allied services.
  4. Loans up to 2 lakh rupees to individuals engaged solely in allied activities without any accompanying land holding criteria.
  5. Loans for construction of oil extraction or processing units for biofuels production, storage, and distribution infrastructure with loans to entrepreneurs for setting up compressed biogas plants.
  6. Indicative lists conveying permissible activities under the Food Processing Sector as recommended by the Ministry of Food Processing Industries.
  7. A credit limit of 5 crore rupees per borrowing entity has been specified for FPOs/FPCs undertaking farming with assured marketing of its produce at the pre-determined price.
  • Other finance to MSMEs

Along with the benefits extended to MSMEs, loans up to 50 crore rupees to startups, according to the definition of the Ministry of Commerce and Industry that confirm to the MSME definition, has been included in the Priority Sector Lending category.

  • Housing loans
  1. Increase in loans up to 10 lakh rupees in metropolitan centres and up to 6 lakh rupees in other centres for repairs to damaged dwelling units.
  2. Banks loans to any government agency for dwelling units construction or for clearance of slum and rehabilitation of slum dwellers subject to the dwelling units with a carpet area of not more than 60 square metres.
  3. Bank loans for affordable housing projects using at least 50 per cent of FAR/FSI for dwelling units with a carpet area of not more than 60 square metres.
  • Social Infrastructure

Bank loans up to a limit of 10 crore rupees per borrower to build health care facilities, including under Ayushman Bharat in tier II to tier VI centres. It is in addition to the existing limit of 5 crore rupees per borrower for setting up schools, drinking water, and sanitation facilities.

  • Renewable energy

Increase in loan limit to 30 crore rupees for solar-based power generators, biomass-based power generators, wind mills, micro hydel plants, and for non-conventional energy based public utilities. 

  • Others

Inclusion of loans to meet local needs like house construction/repair, toilet construction not exceeding 2 lakh rupees provided by banks to SHG/JLG for activities other than agriculture or MSME.

Conclusion


The new master direction on Priority Sector Lending- targets and classification is a welcome move. The provision of loans to startups in agriculture and allied activities, to health care, sanitation will not just boost the flow of credit but can also improve socio-economic conditions in the country.

Read our article:RBI Master Directions on Priority Sector Lending (PSL) Targets and Classification

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Ashish M. Shaji

Ashish M. Shaji has done his graduation in law (BA. LLB) from CCS University. He has keen interests in doing extensive research and writing on legal subjects especially on criminal and corporate law. He is a creative thinker and has a great interest in exploring legal subjects.

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