RBI revises priority sector lending (PSL) guidelines to promote small loan in economically disadvantaged districts with low average loan sizes.
Revised Priority Sector Lending Norms
- Incentive framework: It establishes an incentive framework for districts with lower credit flow starting from FY25.
- More weight (125%) will be given to fresh priority sector loans in districts where loan availability is low (less than Rs 9,000 per person).
- Disincentive framework: In districts with high loan availability (more than Rs 42,000 per person), the loans will have a weight of 90%.
- Other districts: With exception of outlier districts with low credit availability and those with high loan sizes, all other districts will continue to have the current importance level of 100%.
- MSME loans: All bank loans to MSMEs shall qualify for classification under PSL.
About Priority Sector Lending (PSL)
- Priority Sector means those sectors which Government and RBI consider as important for development of the country and are to be given priority over other sectors.
- Objective
- To ensure that vulnerable sections of society and underdeveloped areas get access to credit.
- To direct a portion of bank credit to specified sectors and sub-sectors that impact large segments of the population and are crucial for the economy.
- PSL was formalized in 1972 to facilitate flow of credit to such sectors, which though creditworthy, are unable to access credit from formal financial institutions.
- Various Committees associated with PSL includes:
- Gadgil Committee, 1969 recommended adoption of Area Approach based on which ‘Lead Bank Scheme’ was adopted.
- Ghosh Committee (1982) in which Priority sector categories very revised.
Priority Sector in India’s economic policy: Agriculture, Micro, Small and Medium Enterprises (MSME), Export Credit, Education, Housing, Social Infrastructure, Renewable Energy, Others
Weaker Sections under PSL:
- Small and Marginal Farmers
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- Beneficiaries of Differential Rate of Interest (DRI) scheme (1972), NRLM (National Rural Livelihood Mission), NULM (National Urban Livelihood Mission), Self-Employment Scheme for Rehabilitation of Manual Scavengers (SRMS)
- Distressed farmers indebted to non-institutional lenders
- Artisans, village and cottage industries
- SCs (Scheduled Castes) and STs (Scheduled Tribes)
- SHGs (Self-Help Groups)
- Persons with disabilities
- Individual Women
- Minority communities as notified by Government of India
- Distressed persons other than farmers
Priority Sector Lending Certificates (PSLCs): Certificates to guard against shortfalls in lending to priority sector, that are issued against priority sector loans for banks. Banks can meet their targets & sub-targets by buying these instruments.