Priority Sector Lending (PSL) norms refer to the guidelines issued by the Reserve Bank of India (RBI) to banks for lending to certain sectors that are considered a priority for economic development. The PSL norms aim to ensure that adequate credit is made available to sectors that might have difficulty in accessing credit and are essential for inclusive growth. Here are some details about the PSL norms:
- Target: Banks are mandated to lend a specified percentage of their Adjusted Net Bank Credit (ANBC) or Credit Equivalent Amount of Off-Balance Sheet Exposure (OBE), whichever is higher, to the priority sector. The current target is 40% of ANBC or Credit Equivalent Amount of OBE.
- Priority Sectors: The priority sectors for lending include agriculture, micro, small and medium enterprises (MSMEs), export credit, education, housing, renewable energy, and social infrastructure. Within these sectors, the RBI has further classified certain activities as eligible for PSL.
- Agriculture: Banks are required to lend at least 18% of ANBC or Credit Equivalent Amount of OBE to agriculture. Within agriculture, lending to farmers, crop loans, term loans for agriculture and allied activities, and agricultural infrastructure are considered eligible for PSL.
- MSMEs: Banks are required to lend at least 7.5% of ANBC or Credit Equivalent Amount of OBE to micro-enterprises. Within MSMEs, lending to micro-enterprises, small enterprises, and medium enterprises are considered eligible for PSL.
- Export Credit: Banks are required to lend at least 12% of ANBC or Credit Equivalent Amount of OBE to export credit. Within export credit, lending to sectors such as agriculture, handicrafts, handlooms, and small and medium enterprises are considered eligible for PSL.
- Education: Banks are required to lend at least 1% of ANBC or Credit Equivalent Amount of OBE to education. Within education, loans to individuals for educational purposes and loans to institutions providing educational services are considered eligible for PSL.
- Housing: Banks are required to lend at least 4% of ANBC or Credit Equivalent Amount of OBE to housing. Within housing, loans to individuals for the purchase/construction of dwelling units and loans to housing finance companies are considered eligible for PSL.
- Renewable Energy: Banks are required to lend at least 10% of ANBC or Credit Equivalent Amount of OBE to renewable energy. Within renewable energy, lending to renewable energy-based power generators, equipment suppliers, and service providers are considered eligible for PSL.
- Social Infrastructure: Banks are required to lend at least 7.5% of ANBC or Credit Equivalent Amount of OBE to social infrastructure. Within social infrastructure, lending to hospitals, nursing homes, diagnostic centers, schools, and other social infrastructure projects are considered eligible for PSL.
In conclusion, the PSL norms require banks to lend a specified percentage of their total loans to certain sectors that are essential for inclusive growth. The focus on these sectors ensures that credit is made available to areas that are vital for sustainable economic growth and development. The RBI regularly reviews the PSL norms to ensure that they are aligned with the changing economic priorities of the country.