Priority Sector Lending (PSL) is a means to provide advances to credit deficit and weaker sections of the society. These sectors are integral to the economic growth and development of the country.
As per the Reserve Bank of India (RBI) Circular, following categories have been identified under priority sector lending:
- Agriculture
- Micro, Small and Medium Enterprises
- Export Credit
- Education
- Housing
- Social Infrastructure
- Renewable Energy
- Others
The provisions of these Directions shall apply to every 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 licensed to operate in India by the Reserve Bank of India.
Targets and Sub targets of Priority sector
As part of its strategy to encourage PSL lending, RBI specified targets and sub targets to Scheduled Commercial Banks (SCB) in India.
|
Categories |
Domestic commercial banks & foreign banks with 20 branches or above |
Foreign banks with less than 20 branches |
Regional Rural Banks |
Small Finance Banks |
|
Total Priority Sector |
40 per cent of ANBC or OBE whichever is higher |
40 per cent of ANBC or OBE whichever is higher; outof 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 percent of ANBC or OBE whichever is higher; However, lending to Medium Enterprises, Social Infrastructure and Renewable Energy shall be reckoned for priority sector achievement only up to 15 percent of ANBC. |
75 per cent of ANBC or OBE whichever is higher. |
|
Agriculture |
18 per cent of ANBC or OBE, whichever is higher; out of which a target of 10 percent is prescribed for Small and Marginal Farmers (SMFs) |
Not applicable |
18 per cent ANBC or OBE, whichever is higher; out of which a target of10 percent is prescribed forSMFs |
18 per cent of ANBC or OBE,whichever is higher; out of which a target of 10 percent is prescribed for SMFs |
|
Micro Enterprises |
7.5 per cent of ANBC or OBE, whichever is higher |
Not applicable |
7.5 per cent of ANBC or OBE, whichever is higher |
7.5 per cent of ANBC or OBE, whichever is higher |
|
Advances to Weaker Sections |
12 percent of ANBC or OBE, whichever is higher |
Not applicable |
15 percent of ANBC or OBE, whichever is higher |
12 percent of ANBC or OBE, whichever is higher |
Further, the targets for lending to SMFs and for Weaker Sections is revised upwards from FY 2021-22 onwards as follows:
|
Categories |
Primary Urban Co-operative Bank |
||||
|
Total Priority Sector |
40 per cent of ANBC or OBE, whichever is higher, which shall stand increased to 75 per cent of ANBC or OBE, whichever is higher, with effect from March 31, 2024. Urban Co-operative Banks (UCB) shall comply with the stipulated target as per the following milestones: |
||||
|
Existing Target |
March 31, 2021 |
March 31, 2022 |
March 31, 2023 |
March 31, 2024 |
|
|
40% |
45% |
50% |
60% |
75% |
|
|
Micro Enterprises |
7.5 per cent of ANBC or OBE, whichever is higher |
||||
|
Advances to Weaker Sections |
12 per cent# of ANBC or OBE, whichever is higher. |
||||
|
# Revised targets will be implemented in a phased manner as below for weaker sections |
|||||
|
Financial Year |
Small and Marginal Farmers target * |
Weaker Sections target# |
|
2020-21 |
8% |
10% |
|
2021-22 |
9% |
11% |
|
2022-23 |
9.50% |
11.50% |
|
2023-24 |
10% |
12% |
* Not applicable to UCBs
# Weaker Sections target for RRBs will continue to be 15% of ANBC or OBE, whichever is higher.
All domestic banks and foreign banks with more than 20 branches (except UCBs) are directed that the overall lending to Non-Corporate Farmers (NCFs) does not fall below the average of the last three years’ achievement which will be notified every year. The applicable target for lending to the non-corporate farmers for FY 2020-21 will be 12.14% of ANBC or OBE whichever is higher. However, all efforts should be made by banks to reach the level of 13.5 percent of ANBC.
Computation of Adjusted Net Bank Credit (ANBC) and Off Balance Sheet Exposure (OBE)
Adjusted Net Bank Credit (ANBC): It can be calculated by calculating the Net Bank Credit (NBC), and this NBC can be calculated by subtracting the Bills Rediscounted with RBI and other approved Financial institutions from Bank Credit in India, to this NBC Investments in Non-SLR categories under HTM category and other investments eligible to be treated as priority sector are added to get ANBC.
Off Balance Sheet Exposure (OBE): The credit equivalent amount of a market related off-balance sheet transaction calculated using the current exposure method is the sum of the current credit exposure and potential future credit exposure to these contracts.
Non-achievement of Priority Sector targets
- Banks having any shortfall in lending to priority sector shall be allocated amounts for contribution to the Rural Infrastructure Development Fund (RIDF) established with NABARD and other funds with NABARD/NHB/SIDBI/ MUDRA Ltd., as decided by the RBI from time to
- With effect from March 31, 2021, all UCBs (excluding those under all-inclusive directions) will be required to contribute to Rural Infrastructure Development Fund (RIDF) established with NABARD and other funds with NABARD / NHB / SIDBI / MUDRA Ltd., against their priority sector lending (PSL) shortfall vis-à-vis the prescribed
- While computing PSL target achievement, shortfall / excess lending for each quarter will be monitored A simple average of all quarters will be arrived at and considered for computation of overall shortfall / excess at the end of the year.
(Source RBI website: RBI/FIDD/2020-21/72 Master Directions FIDD.CO.Plan.BC.5/04.09.01/2020-21)
CAclubindia
