RBI’s Revised Priority Sector Guidelines

RBI has recently revised its incentive framework to push banks to increase the flow of priority sector credit to districts with lower credit flow.

New Guidelines of Priority Sector Lending

• Objective: To address the regional disparities at the district level, the new measure will encourage banks to provide small loans in economically disadvantaged districts with low average loan sizes.
  • The new norms discourage lending in districts with high average loan sizes.
• RBI maintains a district wise ranking in terms of per capita credit flow and circulates this with banks so that the lenders raise their efforts as per need to address the gap.
• These lists will remain valid until FY 2026-2027, after which it will be reviewed.

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The RBI Revised Guidelines

• The RBI has with effect from FY25, assigned a higher weight of 125% to the incremental priority sector credit in the districts with per capita priority sector credit less than Rs 9000
  • This effectively means that if a bank gives Rs 100 loan in low credit flow district, it will be considered as Rs 125 priority sector loan.
• Dis-incentive Framework: RBI also follows a disincentive framework for districts with comparatively higher flow of priority sector credit in which a lower 90% weight is assigned for districts where the per capita priority sector credit flow is greater than Rs 42,000. 
  • The weight is maintained at 100% for all other districts not mentioned by the central bank.
• Previous Provision: RBI until now followed a rule of higher weight of 125% in districts where per capita priority sector credit flow was Rs 6000 and the disincentive framework threshold was Rs 25000 earlier.