PRIORITY SECTOR LENDING

Submitted By
Sudharsan. S
Applicant ID- 4003341
 Priority Sector Lending

Priority Sector Lending is an Mandatory norm decided by the Reserve Bank of India (RBI)
and Government of India to the banks for providing a specified portion of the bank lending to
few specific sectors like agriculture and allied activities, micro and small enterprises, poor
people for housing, students for education and other low income groups and weaker sections.
These are the sectors that RBI and Government of India Considered significant for the growth
and development of the basic necessities of the country. The rate of interest to the loans will
be issued by Reserve Bank of India (RBI).

Priority Sector Lending Certificates

Priority Sector Lending Certificates (PSLCs) are a mechanism to enable banks to achieve the
priority sector lending target and sub-targets by purchase of these instruments in the event of
shortfall. This also incentivizes surplus banks as it allows them to sell their excess
achievement over targets thereby enhancing lending to the categories under priority sector.

Categories Under 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

Private Sector Lending Norms

Total Priority Sector

Total Priority Sector for domestic schedule commercial banks (Excluding Regional
Rural Banks and Small finance bank) and foreign banks with 20 Branches and higher
 have 40 per cent of Adjusted Net Bank Credit or Credit Equivalent Amount of Off-
Balance Sheet Exposure, whichever is higher and foreign banks with less than 20
branches have 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.

Agriculture

18 per cent of Adjusted Net Bank Credit or Credit Equivalent Amount of Off-Balance
Sheet Exposure, whichever is higher and within the 8 percent of Adjusted net bank
credit is for Small and Marginal Farmers. The activities covered are divided into three
sub- categories like Farm credit, Agricultural infrastructure and Ancillary activities.

Micro, Small and Medium Enterprises

For MSME’s, 7.5 per cent of Adjusted Net Bank Credit or Credit Equivalent Amount
of Off-Balance Sheet Exposure, whichever is higher. There are no limits prescribed
for bank loans sanctioned to Micro, Small and Medium enterprises engaged in the
manufacture or Production of goods under any industry specified in the first schedule
to the industries. Bank loans to Micro, Small and Medium Enterprises engaged in
providing or rendering of services and defined in terms of investment in equipment
under MSMED Act, 2006, irrespective of loan limits, are eligible for Priority Sector
lending

Social Infrastructure

Bank loans up to a limit of ₹ 50 million per borrower for building social infrastructure
for activities namely schools, health care facilities, drinking water facilities and
sanitation facilities (including loans for construction/ refurbishment of Home and
improvement in water facilities in the household) in Tier II to Tier VI centres are
eligible for classification under priority sector.
Renewable Energy

Bank loans up to a limit of ₹ 150 million to borrowers for purposes like solar based
power generators, biomass based power generators, wind mills, micro-hydel plants
and for non-conventional energy based public utilities such as street lighting systems,
and remote village electrification are eligible to be classified under priority sector
loans under ‘Renewable Energy’. For individual households, the loan limit is ₹ 1
million per borrower.

Education

Loans to individuals for educational purposes including vocational courses upto ₹ 1

million irrespective of the sanctioned amount are eligible for classification under
priority sector.

Housing Loans

Loans to individuals up to ₹3.5 million in metropolitan centre and loans up to ₹ 2.5

million in other centres for purchase/construction of a dwelling unit per family, are
eligible to be considered as priority sector provided the overall cost of the dwelling
unit in the metropolitan centre and at other centres does not exceed ₹ 4.5 million and
₹ 3 million, respectively. Housing loans to banks’ own employees are not eligible for
classification under priority sector.

Weaker Section Categories

It includes Persons with Disabilities, Self Help Groups, Beneficiaries of differential

rate of interest scheme, individual women beneficiaries up to 0.1 million per borrower
etc. are coming under priority sector lending.