Context:
The Reserve Bank of India (RBI) has issued revised guidelines on priority sector lending (PSL), aimed at facilitating better targeting of bank credit to priority sectors of the economy.
- These revised guidelines will come into effect from 1 April 2025.
- RBI stated that the enhanced PSL coverage is designed to improve credit flow to critical areas of the economy.
Key Revisions in PSL Norms:
Enhanced Housing Loan Limits (Based on City Population)
To improve access to affordable housing, RBI has revised upward the PSL-eligible loan ceilings:
| City Population | Maximum Housing Loan Eligible under PSL |
|---|---|
| Above 50 lakh | ₹50 lakh |
| 10–50 lakh | ₹45 lakh |
| Below 10 lakh | ₹35 lakh |
- Home Repair Loans: Enhanced to ₹10–15 lakh (up from ₹6–10 lakh) depending on population tier.
Expanded Renewable Energy Lending
- Public Utilities & Renewable Power Projects:
- Increased from ₹30 crore to ₹35 crore for solar, biomass, and street lighting equipment.
- Individual Households:
- Continued eligibility for loans up to ₹10 lakh for installing renewable energy systems.
Farm Produce Hypothecation Loans
- Individual Farmers: Up to ₹90 lakh
- Corporate Farmers: Up to ₹4 crore
- Farmer Producer Organisations (FPOs): Up to ₹10 crore
These changes are aimed at supporting post-harvest financing and reducing farmers’ reliance on informal credit.
Higher Limits for Educational and Social Sector Loans
- Educational Loans: Increased from ₹20 lakh to ₹25 lakh
- Loans to Artisans and Women Borrowers: Limit doubled from ₹1 lakh to ₹2 lakh
- New Inclusion: Transgender individuals and Joint Liability Groups (JLGs) are now explicitly eligible under PSL.
Revised PSL Targets for Urban Co-operative Banks (UCBs)
- Overall Target: 60% of Adjusted Net Bank Credit (ANBC) or Credit Equivalent of Off-Balance Sheet Exposures (CEOBSE).
- Sub-targets:
- Micro Enterprises: 7.5%
- Weaker Sections: 12%
Expanded Definition of ‘Weaker Sections’
The definition now includes:
- SCs, STs, Minorities (as notified by GoI)
- Persons with disabilities
- Small & Marginal Farmers
- Distressed farmers
- Individual members of SHGs/JLGs
- Artisans
- Individual Women: Cap on loan size removed to promote gender-inclusive finance
Differential Weight System for Regional Credit Flow
To incentivize banks to lend in underserved areas:
| District Type | PSL Weightage |
|---|---|
| Lower per capita credit districts | 125% |
| Higher per capita credit districts | 90% |
This weighting mechanism encourages balanced regional development and more equitable credit distribution.
Impact of the Revised PSL Norms
- Improves Housing Access: Tailored loan limits support housing across urban, semi-urban, and rural segments.
- Green Credit Push: Larger limits for renewable energy projects align with India’s net-zero targets.
- Inclusive Lending: Focus on artisans, women, transgender persons, and marginal farmers strengthens financial inclusion.
- Education and Rural Credit: Higher ceilings for education and farm loans widen the financial safety net.
- Boost to Cooperatives: Revised PSL obligations and expanded borrower categories empower Urban Co-operative Banks (UCBs).
The revised PSL guidelines by RBI, effective April 2025, mark a significant step towards widening access to credit in priority sectors such as affordable housing, renewable energy, and cooperative banking. The emphasis on enhanced limits and target revisions will strengthen India’s push for inclusive economic growth and sustainable development.
