In an economy, there are several sectors that are essential and play a collaborative role in the economic development of the country. This sector needs special care from the government or Central Bank as they are not self-sufficient to survive yet very important – these sectors are broadly classified as Priority Sectors which have certain specified elaboration defined by RBI. The Central Bank (RBI) issues instructions to the banks engaged in commercial lending to lend a specified portion of their lending to these Priority Sectors and sets targets to be achieved in the best interest of the nation. Such lendings by the Banks are called Priority Sector Lending.
PSL – Targets and Categories
Agriculture, Micro Small and Medium Enterprises (MSME), Export Credit, Education, Housing, Social Infrastructure, Renewable Energy and Weaker Section are the main categories of the priority sectors.
From time to time Reserve Bank Of India (RBI) revised the targets of priority sector lending for banks.
Priority Sector Lending for Agriculture
In agriculture activities, banks give loans for three categories which are Farm Credit (Crop Loans, etc), Agriculture Infrastructure (Warehouses, Cold Storage, etc), and Ancillary Activities (Agri Clinic, Food, and Agro-Processing, etc). Only Marginal and Small farmers can avail agriculture PSL. (Marginal farmers are those farmers who have landholding of up to 1 hectare and Small farmers are those farmers who have landholding of more than 1 hectare and up to 2 hectares.)
Priority Sector Lending for MSME
Micro Small and Medium Enterprises (MSME) is one of the major contributors to the Indian economy. MSMEs contribute around 8% in India’s GDP, 45% in total production, and 40% in total export. The table below shows the updated classification of micro, small and medium enterprises based on their investment, turnover, and machinery or equipment.
As per the recent recommendations, there is no restriction on lending to MSMEs but the banks must have to grow their lending amount by 20% by every year for micro and small businesses and also increase micro-enterprise loan accounts by 10% every year.
Priority Sector Lending – Export Credit
In India export is always lower than import and over the past years export is facing global headwinds, so the Reserve Bank of India urges the banks to support export as such RBI has removed the turnover criteria of Rs.100 crore for priority sectors and has also increased export credit limit under priority sector lending (PSL) from Rs.25 crore per borrower to Rs.40 crore per borrower.
Priority Sector Lending – Education
Educational loans also come under Priority Sector Lending because education is one of the important sectors of an economy. Under this criteria individuals can take loans and advances of Rs. 10 lakh to study in India and Rs. 20 lakh to study in abroad.
Priority Sector Lending – Housing
Under the RBI’s PSL guideline for housing loans, people who come under Low-Income Groups (LIG) and Economic Weaker Sections (EWS) can take home loans under the Affordable Housing Scheme. The cost for dwelling units up to Rs 45 lakh loan in metropolitan and up to Rs 30 lakh in other areas are eligible for PSL classification whereas loan amount eligible for same is Rs.28 Lacs and Rs.20 Lacs for Metro and other centers respectively. Families whose annual income is up to Rs 3 lakh comes under EWS and the families whose annual income is up to Rs 6 lakh comes under LIG.
Priority Sector Lending – Social infrastructure
Under the priority sector lending banks lend up to Rs. 5 crores to the borrowers for social infrastructural activities like building schools, health care facilities, drinking water facilities, and sanitation facilities including construction of household toilets and household level water improvements.
Priority Sector Lending – Renewable Energy
Under Priority Sector Lending banks lend up to Rs. 15 crores to the borrowers for Renewable Energy Plants like solar power generators, biomass power generators, windmills, micro-hydro plants, and non-conventional energy based public utilities.
Priority Sector Lending – Weaker Section
According to RBI guidelines, banks are bounded to lend some portion of their priority lending to weaker sections to uplift them. Weaker Section Categories are listed below:-
- Small and Marginal Farmers
- Artisans, village, and cottage industries credit limits up to 1 lakh rupee
- People who get benefit under Government Sponsored Schemes
- Scheduled Castes and Scheduled Tribes
- People who get benefit under the Differential Rate of Interest (DRI) scheme
- Self Help Groups
- Distressed farmers / other than farmers indebted to non-institutional lenders- up to 1 lakh rupee
- Individual women beneficiaries up to 1 lakh rupee per borrower
- Persons with disabilities
- PMJDY account holders avail of the facility of Overdraft of 10,000 rupees (With Age limit of 18-65 Yrs)
- Minority communities may be notified by GOI.