Economy Simplified: Priority Sector Lending in India explained.

1. 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. 
2. The banks are mandated to encourage the growth of such sectors with adequate and timely credit.
3. Priority Sector Lending Certificates (PSLCS) – are a mechanism to enable banks to achieve the PSL target and sub-targets by purchase of these instruments in the event of a shortfall.
4. In 2007, the RBI included five minorities –  Buddhists, Christians, Muslims, Parsis and Sikhs under the PSL.
5. The Recent changes include broadening the scope of PSL to include start-ups, increasing the limits for renewable energy, including solar power and compressed biogas plants and increasing the targets for lending to small and marginal farmers and weaker sections.

Categories of 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

Targets for scheduled commercial banks

Categories Domestic scheduled commercial banks and foreign banks with 20 branches and aboveForeign banks with less than 20 branchesRegional Rural Banks
Small Finance Banks
Total Priority Sector40% of the Adjusted Net Bank Credit (ANBC)40% of the Adjusted Net Bank Credit (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 sector75% of the Adjusted Net Bank Credit (ANBC)75% of the Adjusted Net Bank Credit (ANBC)
Agriculture18% of ANBCNot Applicable 18% of ANBC18% of ANBC
Micro Enterprises 7.5% of ANBCNot Applicable7.5% of ANBC7.5% of ANBC
Advances to weaker Sections 12% of ANBCNot Applicable 15% of ANBC12% of ANBC
ANBC: Adjusted Net Bank Credit (ANBC)

Weaker sections under Priority sector

  1. Small and Marginal Farmers
  2. Artisans, village and cottage industries where individual credit limits do not exceed Rs 1 lakh
  3. Beneficiaries under Government Sponsored Schemes such as National Rural Livelihoods 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 Rs 1 lakh per borrower to prepay their debt to non-institutional lenders
  9. Individual women beneficiaries up to Rs 1 lakh per borrower
  10. Persons with disabilities
  11. Minority communities as may be notified by Government of India from time to time

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