What is Priority Sector Lending?

• • Priority Sector means those sectors which the Government of India and Reserve Bank of India consider as important for the development of the basic needs of the country and are to be given priority over other sectors. The banks are mandated to encourage the growth of such sectors with adequate and timely credit.
  • Priority Sector includes the following categories:
    • Agriculture
    • Micro, Small and Medium Enterprises
    • Export Credit
    • Education
    • Housing
    • Social Infrastructure
    • Renewable Energy
    • Others
• Targets Under the Priority Sector Lending

• • Domestic scheduled commercial banks (excluding Regional Rural Banks and Small Finance Banks) and Foreign banks with 20 branches and above: 40 per cent of Adjusted Net Bank Credit or Credit Equivalent Amount of Off-Balance Sheet Exposure, whichever is higher. 
  • Regional Rural Banks & Small finance banks: 75 per cent of Adjusted Net Bank Credit or Credit Equivalent Amount of Off-Balance Sheet Exposure, whichever is higher. 
  • Foreign banks with less than 20 branches: 40 per cent of Adjusted Net Bank Credit or Credit Equivalent Amount of Off-Balance Sheet Exposure, whichever is higher, to be achieved in a phased manner by 2020.
  • Sub-targets are specified for certain sectors like 18% to agriculture with 8% to small and marginal farmers, 7.5% to micro units etc.

Recent changes 

• Recently the RBI released revised priority sector lending guidelines to augment funding to segments including start-ups and agriculture.
• According to the revised guidelines, 
  • Bank finance of up to ₹50 crore to start-ups, 
  • loans to farmers both for installation of solar power plants for solarisation of grid-connected agriculture pumps, and for setting up compressed biogas (CBG) plants have been included as fresh categories eligible for finance under the priority sector.
• The revised PSL guidelines have been framed to address regional disparities in the flow of priority sector credit. Higher weightage has been assigned to incremental priority sector credit in ‘identified districts’ where priority sector credit flow is comparatively low.
• The targets prescribed for ‘small and marginal farmers’ and ‘weaker sections’ are being increased in a phased manner and higher credit limit has been specified for farmer producer organisations (FPOs)/farmers producers companies (FPCs) undertaking farming with assured marketing of their produce at a pre-determined price.
• While the loan limits for renewable energy have been doubled now, the credit limit for health infrastructure, including those under ‘Ayushman Bharat’,  has also been doubled to improve the country’s health infrastructure. 
• Commercial banks have been instructed to adhere to the revised guidelines.

Why in News?

• Despite many efforts by the government to boost credit supply by offering many schemes to priority sectors, the loan demand from the priority sector plunged to a low 1.9 per cent in the June 2020 quarter from a high 10.2 per cent a year ago.

Reference:

1. https://www.financialexpress.com/industry/banking-finance/credit-demand-from-priority-sectors-drops-to-1-9-per-cent-in-june-quarter-report/2094460/