Priority Sector Lending: Categories, Targets & Fund Distribution

Introduction

Priority Sector Lending is the directive from the RBI to banks, urging them to allocate funds towards designated sectors of the economy such as agriculture and allied activities, education, housing, and food provision for disadvantaged populations. It is aimed at directing a specific portion of commercial bank credit towards certain sectors deemed crucial for the development and social welfare of the Indian economy..

Categories of Priority Sector are as Follows: 

• Agriculture; 
• Micro, Small and Medium Enterprises; 
• Export Credit; 
• Education; 
• Housing; 
• Social Infrastructure; 
• Renewable Energy; 
• Food Processing Sector.

Targets /Sub-targets for Priority sector

• As per RBI’ recent data, The targets and sub-targets set under priority sector lending, to be computed based on the ANBC/ CEOBE as applicable as on the corresponding date of the preceding year, are as under
• Adjusted Net Bank Credit (ANBC): For priority sector lending, ANBC denotes the outstanding Bank Credit in India

Inclusion Criteria for Weaker Sections

• It includes Small and Marginal Farmers, Artisans, and village and cottage industries where individual credit limits do not exceed ` 1 lakh.
• Beneficiaries under Government Sponsored Schemes such as National Rural Livelihood Mission (NRLM), National Urban Livelihood Mission (NULM) and Self Employment Scheme for Rehabilitation of Manual Scavengers (SRMS)
• Scheduled Castes and Scheduled Tribes
• Beneficiaries of Differential Rate of Interest (DRI) scheme
• Self Help Groups
• Distressed farmers indebted to non-institutional lenders
• Distressed persons other than farmers, with loan amount not exceeding ` 1 lakh per borrower to prepay their debt to non-institutional lenders
• Individual women beneficiaries up to ` 1 lakh per borrower (For UCBs, existing loans to women will continue to be classified under weaker sections till their maturity/repayment.)
• Persons with disabilities
• Minority communities may be notified by the Government of India from time to time.

Expansion of Loan Categories

• Loans directly to individuals or SHG/JLG members meeting criteria in the Master Direction on Regulatory Framework for Microfinance Loans (dated March 14, 2022).
• Loans up to ` 2.00 lakh to SHG/JLG for non-agricultural or MSME activities, such as social needs, housing, toilet construction, or SHG-initiated projects.
• Loans (not exceeding ` 1.00 lakh per borrower) to distressed individuals, excluding distressed farmers indebted to non-institutional lenders, for prepaying debts to non-institutional lenders.
• Loans to State Sponsored Organizations for Scheduled Castes/Scheduled Tribes, exclusively for input procurement and marketing of beneficiaries’ outputs.
• Loans (up to ` 50 crore) to Start-ups, meeting the Ministry of Commerce and Industry’s definition, engaged in non- agricultural or MSME activities.

Rural Infrastructure Development Fund (RIDF)

• If a bank falls short of meeting the prescribed target set by the Priority Sector Lending (PSL) norms, it is obligated to deposit the earmarked amount into the Rural Infrastructure Development Fund (RIDF) and Urban Infrastructure Development Fund.
• The RIDF is administered by the National Bank for Agriculture and Rural Development (NABARD), and the specific amount is determined periodically by the apex bank.
• Banks can co-lend with NBFCs and housing finance companies to meet PSL targets.
• Established in 1995-96
• At present, there are 39 eligible activities under RIDF. The eligible activities are classified under three broad categories i.e.
  • Agriculture and related sector
  • Social sector 
  • Rural connectivity

Urban Infrastructure Development Fund.

• This fund will be managed by National Housing Bank and has been operationalised with an initial corpus of Rs.10,000 crore.
• Supplement efforts of the State Governments/UTs for urban infrastructure development work.
• Implemented through Public/State Agencies, Municipal Corporations, Urban Local Bodies in Tier 2 and Tier 3 cities by providing a stable and predictable source of financing.
• • UIDF will focus on cities/ Urban Local Bodies (ULBs) in the population group of 50,000 to 9,99,999 as per latest Census data covering about 40% of the Urban Population.
• Some of the eligible activities are as under:
  • Water Supply & Sanitation
  • Solid Waste Management
  • Construction of roads (excluding maintenance works), Over bridges, grade separators, underpasses
  • Comprehensive Area Development Projects
  • Local Area Plan for de-congestion
  • Heritage Conservation
  • Town Planning Schemes for greenfield development
  • Parks with open Gym not involving major construction work, etc.

Conclusion

• Priority Sector Lending serves as a crucial mechanism overseen by the RBI to ensure that banks allocate funds towards key sectors vital for economic development and social welfare. 
• By directing financial resources to areas like agriculture, education, housing, and support for marginalized communities, Priority Sector Lending contributes to inclusive growth and addresses the diverse needs of the economy.
• This approach not only fosters sectoral development but also promotes financial inclusion and poverty alleviation, thereby fostering a more equitable and sustainable economic landscape.