Reserve Bank of India (RBI)
Reserve Bank of India (RBI)

The Reserve Bank of India (RBI) has announced revised guidelines for Priority Sector Lending (PSL). In a major push towards extending rural credit, the central bank has included new sectors and changed the district wise weightage for inclusive development.

What is priority sector lending?

Under Priority Sector Lending, the RBI has mandated the banks to reserve a specified portion of their lending to specific sectors, micro & small enterprises and weaker sections of the society.

The objective is to spur the growth in the upcoming sectors or upliftment of the poor by making the credit available to them.

What are the revised guidelines?

The RBI has altered the priority lending norms to improve credit flow toward small & marginal farmers and brought the new sectors under the PSL. It is an effort to divert liquidity towards new areas and sectors which requires credit boost for growth.

The limit for advances in Renewable Energy has been doubled from Rs 1.5m to Rs 3m. For Health Infrastructure, the same has been doubled from Rs 0.5m to Rs 1m, while for Education loans the limit has been increased from Rs 1m to Rs 2m.

Furthermore, bank finance to start-ups, loans to farmers for installation of solar power plants and loans for setting up Compressed Bio Gas plants have been included as fresh categories eligible under the priority sector.

The RBI has also increased the weightage of credit flow in favor of states that have low per capita PSL while weightage is declined for states that have high per capita PSL. Currently, Bihar, Uttar Pradesh and Arunachal Pradesh have the lowest per capital PSL coverage while Tamil Nadu (16%), Punjab (9%) and Haryana (8%) tops the chart.

Key takeaways:

While most banks were largely in compliance with the current requirement at an aggregate level, the inclusion of new sectors along with the change in weightage could compel some banks to divert liquidity towards new sectors and geographies.

Hence, we believe that revised RBI guidelines are a step in the right direction and maintain #Teji outlook on the same.

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