Priority Sector Lending: Do you now about the Priority Sector Lending Scheme of RBI? What is Priority Sector? What is Priority Sector lending? What is Priority Sector Lending Certificate? If you know then just go this post for a quick revision. If you don’t then read this post thoroughly.  

We have incorporated the changes made in Priority Sector Lending Scheme by RBI in September 2020.

What is Priority Sector Lending?

The Reserve Bank of India has put in a framework wherein banks are required to lend a certain percent of there loans to the priority sector. Suppose presently the Priority Sector Lending target is fixed at 40%, which means that if a bank has given loans worth Rs 100 Crores then out of these Rs 40 Crore loan must be given to Priority Sector.

PSL is applicable on which banks?

Priority Sector Lending Scheme is applicable on

• Commercial Bank including
  • Regional Rural Bank (RRB),
  • Small Finance Bank (SFB),
  • Local Area Bank and
• Primary (Urban) Co-operative Bank (UCB) other than Salary Earners’ Bank

What are Priority Sectors?

The Reserve Bank of India has identified these 8 categories as Priority Sector:

1. Agriculture
2. Micro, Small and Medium Enterprises
3. Export Credit
4. Education
5. Housing
6. Social Infrastructure
7. Renewable Energy
8. Others

Loans to these sectors will be counted as loans under the Priority Sector and banks have to comply with this norm by RBI.

What is ANBC– Adjusted Net Bank Credit- In simple language and as of now just understand it as the total loans given by the bank. 

Target for Priority Sector Lending

The RBI has set a target for banks for lending to the priority sector in terms of percentage of ANBC. Also for some categories like agriculture, MSME etc. RBI has set sub-target for lending. The same is given in the table below. 

Part 1: For scheduled commercial banks, Foreign Banks, RRBs and Small Finance Banks

Category	Domestic scheduled commercial banks and foreign banks with 20 branches and above	Foreign banks with less than 20 branches	Regional Rural Banks	Small Finance Banks
Total Priority Sector	40% of ANBC	40% of ANBC– out of which up to 32% can be in the form of lending to Exports and not less than 8% can be to any other priority sector	75% of ANBC
Agriculture	18% of ANBC– out of which a target of 10%* is prescribed for Small and Marginal Farmers (SMFs) *This will increase in a phased manner as in the table given below.	NA	18% of ANBC– out of which a target of 10% is prescribed for Small and Marginal Farmers (SMFs)	18% of ANBC– out of which a target of 10% is prescribed for Small and Marginal Farmers (SMFs)
Micro Enterprises	7.5% of ANBC	NA	7.5% of ANBC	7.5% of ANBC
Advances to Weaker Sections	12% of ANBC** **This will increase in a phased manner as in the table given below.	NA	15% of ANBC	12% of ANBC** **This will increase in a phased manner as in the table given below.

Part 2: For Primary Urban Co-operative Bank

Category	Primary Urban Co-operative Bank
Total Priority Sector	Starting from 40% to 75% of ANBC with effect from March 31, 2024 as under- Existing target- 40% March 31, 2021- 45% March 31, 2022- 50% March 31, 2023- 60% March 31, 2024- 75%
Micro Enterprises	7.5% of ANBC
Advances to Weaker Sections	12% of ANBC

Revised targets for Small and Marginal Farmers (SMFs) and weaker sections will be implemented in a phased manner as indicated below

Financial Year	Small and Marginal Farmers target *	Weaker Sections target **
2020-21	8%	10%
2021-22	9%	11%
2022-23	9.5%	11.5%
2023-24	10%	12%

Note: This is only the minimum level of lending prescribed by RBI. Banks can lend even more than this. 

Details of Priority Sectors

Agriculture– It will include (i) Farm Credit (Agriculture and Allied Activities)  (ii) Agriculture Infrastructure and (iii) Ancillary Activities.

Farm Credit – to Individual farmers – Loans against pledge/hypothecation of agricultural produce (including warehouse receipt) for a period not exceeding 12 months subject to a limit up to Rs 50 lakh.

Farm Credit – to Corporate farmers

• Loans for the following activities will be subject to an aggregate limit of Rs 2 crore per borrowing entity:

1. 1. Crop loans to farmers which will include traditional/non-traditional plantations and horticulture and loans for allied activities.
   2. Medium and long-term loans for agriculture and allied activities (e.g. purchase of agricultural implements and machinery and developmental loans for allied activities).
   3. Loans for pre and post-harvest activities viz. spraying, harvesting, grading and transporting of their own farm produce.

• Loans up to Rs 50 lakh against pledge/hypothecation of agricultural produce (including warehouse receipts²) for a period not exceeding 12 months.

Agriculture Infrastructure- limit of Rs 100 crore per borrower

Ancillary Services– Following loans under ancillary services will be subject to limits prescribed as under:

• Loans up to Rs. 5 crore to co-operative societies of farmers for purchase of the produce of members (Not applicable to UCBs)
• Loans up to Rs. 50 crore to Start-ups, as per definition of Ministry of Commerce and Industry, Govt. of India that are engaged in agriculture and allied services.
• Loans for Food and Agro-processing up to an aggregate sanctioned limit of Rs. 100 crore per borrower from the banking system.

Small and Marginal Farmers (SMFs)

• Marginal Farmers– Farmers with landholding of up to 1 hectare
• Small Farmers– Farmers with a landholding of more than 1 hectare and up to 2 hectares
• Loans up to Rs 2 lakh to individuals solely engaged in Allied activities without any accompanying land holding criteria.

Micro, Small and Medium Enterprises

• Khadi and Village Industries Sector (KVI)- 7.5 percent of ANBC
• Loans up to ₹50 crore to Start-ups

Education– Loans upto Rs 20 lakh.

Housing – Eligible loan amount is mentioned below:

Place	Maximum Eligible Loan	Cost of house should not exceed
Metropolitan	35 lakhs	45 lakhs
Other	25 lakhs	30 lakhs

• Maximum loan for repair of house in metropolitan area- Rs 10 lakhs
• Maximum loan for repair of house in other centers- Rs 6 lakhs

Bank loans to HFCs (approved by NHB for their refinance) for on-lending, up to Rs. 20 lakh for individual borrowers

Social infrastructure– Bank loans up to a limit of Rs 5 Crore per borrower for setting up schools, drinking water facilities and sanitation facilities including construction/ refurbishment of household toilets and water improvements at household level, etc.

For loans up to a limit of Rs 10 crore per borrower for building health care facilities including under ‘Ayushman Bharat’ in Tier II to Tier VI centres. 

Renewable Energy– If a person or organization wants loan for purposes like solar based power generators, biomass based power generators, wind mills, micro-hydel plants and for non-conventional energy based public utilities viz. street lighting systems, and remote village electrification then the limit for same is:

• For organisations- Rs 30 Crore
• For individual- Rs 10 Lakh

Others– The following categories come under others as defined by RBI

Category	Maximum Loan	Restriction
Individual	Rs. 1 lakh	Maximum Annual Income in rural area = Rs 1 lakh in Urban area= Rs 1.6 lakh
To Self Help Groups (SHGs) and Joint Liability Groups (JLGs)	Rs. 2 lakh	for activities other than agriculture or MSME, viz., loans for meeting social needs, construction or repair of house, construction of toilets or any viable common activity started by the SHGs.
Loans to distressed persons	Rs 1 lakh	other than farmers
Start-ups	Rs 50 crore	engaged in activities other than Agriculture or MSME.

Priority sector loans to Weaker Section

Priority sector loans to the following borrowers will be considered under the Weaker Sections category:-

1	Small and Marginal Farmers
2	Artisans, village and cottage industries where individual credit limits do not exceed ₹1 lakh
3	Beneficiaries under Government Sponsored Schemes such as National Rural Livelihood Mission (NRLM), National Urban Livelihood Mission (NULM) and Self Employment Scheme for Rehabilitation of Manual Scavengers (SRMS)
4	Scheduled Castes and Scheduled Tribes
5	Beneficiaries of Differential Rate of Interest (DRI) scheme
6	Self Help Groups
7	Distressed farmers indebted to non-institutional lenders
8	Distressed persons other than farmers, with loan amount not exceeding ₹1 lakh per borrower to prepay their debt to non-institutional lenders
9	Individual women beneficiaries up to ₹1 lakh per borrower (For UCBs, existing loans to women will continue to be classified under weaker sections till their maturity/repayment.)
10	Persons with disabilities
11	Minority communities as may be notified by Government of India from time to time.

Service charges: No loan related and ad hoc service charges/inspection charges should be levied on priority sector loans up to Rs. 25,000.

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