Priority Sector Lending

Priority Sector	Min.% of Loans
Agriculture	18% (Out of 18%, 10% should be earmarked for Small and Marginal farmers)
Micro Enterprises	7.5%
Advances to Weaker Sections	12%
Export Credit Education Housing Social Infrastructure (Schools, Health Care Facilities etc.) Renewable Energy	Remaining
Total	40%

Definition of Priority Sector Loans to Agriculture

Eligible entities: Individual farmers, Farmer groups (SHGs, FPOs, Cooperatives)
Activities covered: Agriculture and allied activities such as dairy, fishery, animal husbandry, poultry, beekeeping and sericulture.
Scope:
- Crop loans
- Medium- and Long-term loans for purchase of land, agricultural machinery, or investment in post-harvest infrastructure
- Loans to distressed farmers indebted to non-institutional farmers
- Loans under Kisan Credit Card (KCC)
- Loans against Negotiable warehousing Receipts
- Loans for installation for solar agricultural pump sets or for setting up solar power plants on barren land
Note: Loans given to Start-Ups (Up to Rs 50 crores) involved in agriculture and allied activities and Food Processing Industries (up to Rs 100 crores) also considered as Priority sector loans under Agriculture.

Scheduled commercial banks (excluding Regional Rural Banks): 40%
Foreign Banks with less than 20 branches: 40% (32% can be in the form of lending to Exports and at least 8% can be to any other priority sector)
Regional Rural banks and Small Finance Banks: 75% of total loans
Urban Cooperative Banks: 40% of total loans. (To be increased to 75% by March 31, 2024, in a phased manner)

Buy Priority Sector Lending Certificates (PSLCs) or Transfer shortfall amount to Rural Infrastructure Development Fund (NABARD) or Transfer shortfall amount to Small Enterprises Development Fund (SIDBI).
Interest rates on such contributions by the Banks is fixed by the RBI.
Priority Sector Lending Certificates (PSLCs): Enables Bank ‘A’ which has failed to meet PSL target to meet the target by purchasing PSL certificate from another Bank ‘B’, which has exceeded the target. There is no transfer of loans under PSLC mechanism.
- Types:
  - PSLC General
  - PSLC Small and Marginal Farmer
  - PSLC Agriculture & PSLC Micro Enterprises

Budget 2023-24 has proposed to create Urban Infrastructure Development Fund on the lines where entities can park their Priority Sector shortfalls.
This fund will be established through the use of priority sector lending shortfall.
UIDF will be used by public agencies to create urban infrastructure in Tier 2 and Tier 3 cities.
Rs 10,000 crores will be available in UIDF.
Managed by National Housing Bank (NHB).
States will be encouraged to leverage resources from grants of 15th Finance Commission and existing schemes to adopt appropriate user charges while accessing UIDF.
The fund will be along the lines of Rural Infrastructure Development Fund.

Co-origination of loans: Under this framework, bank and NBFC can come together to provide loans to various sectors wherein they decide to share the loan amount and associated risks in a predetermined manner. It is expected that such a blending would not only increase flow of credit to priority sectors but also bring down the cost of credit for the sector substantially. In Nov 2020, the RBI has issued detailed guidelines related to co-lending.
Addressing Regional Disparities in flow of PSL Credit: A higher weight (125%) would be assigned to priority sector credit in the identified districts where the credit flow is comparatively lower, and a lower weight (90%) would be assigned for incremental priority sector credit in the identified districts where the credit flow is comparatively higher.
Boost to Start-Up Ecosystem: Loans of up to Rs 5 crores to the Start-ups would be considered as Priority sector lending.
Enhancement of Loan limit against Negotiable Warehousing Receipts (NWRs): Enhance the loan limit from Rs 50 lakh to Rs 75 lakh per borrower against the pledge of agricultural produce backed by NWRs/(e-NWRs) issued by warehouses registered and regulated by WDRA.
Lending by Small Finance Banks (SFBs) to MFIs for on-lending to be classified as Priority Sector Lending (PSL)

The Banks can fulfil their priority sector lending targets either directly (on their own) or indirectly (by lending to HFCs, MFIs, NBFCs etc). Presently, this on-lending facility is available only to Scheduled Commercial Banks. It is not available to Regional Rural Banks (RRBs), Urban Cooperative Banks (UCBs) and Small Finance Banks (SFBs).

The RBI decided to allow the Small Finance Banks to avail the facility of on-lending. This facility will be available up to March 31, 2022. Henceforth, the SFBs can extend loans to MFIs for on-lending to priority sectors. The new facility will enable the SFBs to fulfil their PSL target of 75% and at the same time improve credit creation in the economy.