Priority Sector Lending

Scheduled Commercial Banks

www.edutap.co.in
 Topics To be Discussed
Meaning, Background and History of PSL

Total Target Under PSL

Agriculture

Categories Under PSL

MSME

www.edutap.co.in
 Meaning Of PSL
❑ Priority Sector refers to those sectors of the economy which may not get timely and adequate credit.

❑ Priority Sector Lending is an important role given by the Reserve Bank of India (RBI) to the banks for
providing a specified portion of the bank lending to few specific sectors.

❑ The sectors may be agriculture and allied activities, micro and small enterprises, poor people for housing,
students for education and other low income groups and weaker sections.

❑ This is essentially meant for an all round development of the economy as opposed to focusing only on the
financial sector.

www.edutap.co.in
 Background and History
❑ At a meeting of the National Credit Council held in
July 1968, first time the idea of priority lending to
agriculture sector was mooted.

❑ The description of the priority sectors was later

formalized in 1972.

❑ Although initially there was no specific target fixed

in respect of priority sector lending, in 1974 the
banks were advised to raise the share of these
sectors in their aggregate advances to the level of
33.3% by March 1979.

www.edutap.co.in
First time the idea of priority lending to a particular sector of economy was mooted by?

A. Bimal Jalan panel

B. National credit council of 1968
C. Rangarjan committee
D. Narsimhan Varman I
E. None of the above

Answer-B

www.edutap.co.in
 Background and History
❑ Subsequently, on the basis of the recommendations of the Working Group on the Modalities of
Implementation of Priority Sector Lending and the Twenty Point Economic Programme by Banks
(Chairman: Dr. K. S. Krishnaswamy), all commercial banks were advised to achieve the target of priority
sector lending at 40 percent of aggregate bank advances by 1985.

❑ Sub-targets were also specified for lending to agriculture and the weaker sections within the priority sector.

www.edutap.co.in
 Revised PSL 2020
❑ The revised guidelines aim to encourage
and support environment friendly
lending policies to help achieve
Sustainable Development Goals (SDGs).

❑ This review also took into account the

recommendations made by the ‘Expert
Committee on Micro, Small and
Medium Enterprises (Chairman: Shri
U.K. Sinha) and the ‘Internal Working
Group to Review Agriculture Credit’
(Chairman: Shri M. K. Jain)

www.edutap.co.in
 Total Priority sector Target
Domestic scheduled commercial banks and Foreign banks with 20 branches and above:
❑ 40 percent of Adjusted Net Bank Credit or Credit Equivalent Amount of Off-Balance Sheet Exposure, whichever is higher.

Foreign banks with less than 20 branches

❑ 40 percent of Adjusted Net Bank Credit or Credit Equivalent Amount of Off-Balance Sheet Exposure, whichever is higher;
to be achieved in a phased manner by 2020 .

www.edutap.co.in
 Categories Under PSL

Micro, Small and

Agriculture
Medium Enterprises

Export Credit Education

Housing Social Infrastructure

Renewable Energy Others

NOTE: The others category includes personal loans to weaker section, loans to distressed persons, loans to state
sponsored organizations for SC/ST.

www.edutap.co.in
According to the RBI guidelines on priority sector lending there are how many categories of priority sector for
the public sector banks, private sector domestic and foreign banks.

A. 5
B. 6
C. 7
D. 8
E. 9

Answer-D

www.edutap.co.in
 Adjustments for weights in PSL
Achievement
❑ To address regional disparities in the flow of priority sector credit at the district level, it has been decided to
rank districts on the basis of per capita credit flow to priority sector and build an incentive framework for
districts with comparatively lower flow of credit and a dis-incentive framework for districts with
comparatively higher flow of priority sector credit.

❑ Accordingly, from FY 2021-22 onwards, a higher weight (125%) would be assigned to the incremental priority
sector credit in the identified districts where the credit flow is comparatively lower (per capita PSL less than
₹6000).

❑ And a lower weight (90%) would be assigned for incremental priority sector credit in the identified districts
where the credit flow is comparatively higher (per capita PSL greater than ₹25,000).

www.edutap.co.in
 Categories Under PSL
Categories Under PSL:

Micro, Small and

Agriculture
Medium Enterprises

Export Credit Education

Housing Social Infrastructure

Renewable Energy Others

NOTE: The others category includes personal loans to weaker section, loans to distressed persons, loans to state
sponsored organizations for SC/ST.

www.edutap.co.in
 Sub Targets-Agriculture
Domestic scheduled commercial banks and Foreign banks with 20 branches and above:
❑ 18 percent of ANBC or Credit Equivalent Amount of Off-Balance Sheet Exposure, whichever is higher.

❑ Within the 18 percent target for agriculture, a target of 10 percent (earlier 8%) of ANBC or Credit Equivalent
Amount of Off Balance Sheet Exposure, whichever is higher is prescribed for Small and Marginal Farmers.

❑ The revised target has to be achieved in a phased manner.

Foreign banks with less than 20 branches:

❑ Not applicable.
 Sub Targets-Agriculture
SMALL AND MARGINAL FARMERS:
❑ Farmers with landholding of up to 1 hectare (Marginal Farmers). Farmers with a landholding of more than 1
hectare and up to 2 hectares (Small Farmers).

❑ Landless agricultural labourers, tenant farmers, oral lessees and share-croppers, whose share of landholding
is within the limits prescribed for small and marginal farmers.

❑ Loans to Self Help Groups (SHGs) or Joint Liability Groups (JLGs), i.e. groups of individual Small and Marginal
farmers directly engaged in Agriculture and Allied Activities.

❑ Loans up to ₹2 lakh to individuals solely engaged in Allied activities without any accompanying land holding criteria.

❑ Loans to farmers' producer companies of individual farmers, and co-operatives of farmers directly engaged
in Agriculture and Allied Activities, where the membership of Small and Marginal Farmers is not less than 75
per cent by number and whose land-holding share is also not less than 75 per cent of the total land-holding
For the purpose of computation of achievement of the sub-target, Small and Marginal Farmers will include
which of the following?

1. Landless agricultural labourers, tenant farmers, oral lessees and share-croppers, whose share of
landholding is within the limits prescribed for small and marginal farmers.
2. Self help groups of small and marginal farmers.
3. Farmers with landholding upto 1 hectare.

A. 3 only
B. 1 and 3
C. 1 2 and 3
D. 1 only
E. None of the above

Answer-C

www.edutap.co.in
Eligible Categories Under Agriculture

Farm Credit (which will include short-term crop loans and

medium/long-term credit to farmers).

The lending to agriculture

sector has been defined to Agriculture Infrastructure.
include:

Ancillary Activities.

www.edutap.co.in
 Farm Credit
A. Loans to individual farmers [including Self Help Groups (SHGs) or Joint Liability Groups (JLGs)], directly
engaged in Agriculture and Allied Activities ,viz., dairy, fishery, animal husbandry, poultry, bee-keeping and
sericulture. This will include:

(i) Crop loans to farmers, which will include traditional/non-traditional plantations and horticulture, and, loans
for allied activities.

(ii) Medium and long-term loans to farmers for agriculture and allied activities (e.g. purchase of agricultural
implements and machinery, loans for irrigation and other developmental activities undertaken in the farm, and
developmental loans for allied activities.)

(iii) Loans to farmers for pre and post-harvest activities, viz., spraying, weeding, harvesting, sorting, grading
and transporting of their own farm produce.

www.edutap.co.in
 Farm Credit
(iv) Loans to farmers up to ₹ 50 lakh against pledge/hypothecation of agricultural produce (including
warehouse receipts) for a period not exceeding 12 months.

(v) Loans to distressed farmers indebted to non-institutional lenders.

(vi) Loans to farmers under the Kisan Credit Card Scheme.

(vii) Loans to small and marginal farmers for purchase of land for agricultural purposes.

www.edutap.co.in
 Farm Credit
B. Loans to corporate farmers, farmers' producer organizations/companies of individual farmers, partnership
firms and co-operatives of farmers directly engaged in Agriculture and Allied Activities up to an aggregate limit
of ₹ 2 crore per borrower. This will include:

(i) Crop loans to farmers which will include traditional/non-traditional plantations and horticulture, and, loans
for allied activities.

(ii) Medium and long-term loans to farmers for agriculture and allied activities (e.g. purchase of agricultural
implements and machinery, loans for irrigation and other developmental activities undertaken in the farm, and
developmental loans for allied activities.)

(iii) Loans to farmers for pre and post-harvest activities, viz., spraying, weeding, harvesting, sorting, grading
and transporting of their own farm produce.

(iv) Loans up to ₹ 50 lakh against pledge/hypothecation of agricultural produce (including warehouse receipts)
for a period not exceeding 12 months.
Loans to farmers up to ____________ Lakh against pledge/hypothecation of agricultural produce (including
warehouse receipts) for a period not exceeding 12 months.

A. 15 lakh
B. 20 lakh
C. 50 lakh
D. 75 lakh
E. None of the above

Answer-C

www.edutap.co.in
Eligible Categories Under Agriculture

Farm Credit (which will include short-term crop loans and

medium/long-term credit to farmers).

The lending to agriculture

sector has been defined to Agriculture Infrastructure.
include:

Ancillary Activities.

www.edutap.co.in
 Agriculture Infrastructure
i) Loans for construction of storage facilities (warehouses, market yards, godowns and silos) including cold
storage units/ cold storage chains designed to store agriculture produce/products, irrespective of their
location.

ii) Soil conservation and watershed development.

iii) Plant tissue culture and agri-biotechnology, seed production, production of bio-pesticides, bio-fertilizer, and
vermi composting.

For the above loans, an aggregate sanctioned limit of ₹ 100 crore per borrower from the banking system,
will apply.

www.edutap.co.in
Eligible Categories Under Agriculture

Farm Credit (which will include short-term crop loans and

medium/long-term credit to farmers).

The lending to agriculture

sector has been defined to Agriculture Infrastructure.
include:

Ancillary Activities.

www.edutap.co.in
 Ancillary Activities
(i) Loans up to ₹ 5 crore to co-operative societies of farmers for disposing of the produce of members.

(ii) Loans for setting up of Agri-clinics and Agribusiness Centres.

(iii) Loans for Food and Agro-processing up to an aggregate sanctioned limit of ₹ 100 crore per borrower from
the banking system.

(iv) Loans to Custom Service Units managed by individuals, institutions or organizations who maintain a fleet of
tractors, bulldozers, well-boring equipment, threshers, combines, etc., and undertake farm work for farmers on
contract basis.

www.edutap.co.in
 Ancillary Activities
(v) Bank loans to Primary Agricultural Credit Societies (PACS), Farmers’ Service Societies (FSS) and Large-sized
Adivasi Multi-Purpose Societies (LAMPS) for on-lending to agriculture.

(vi) Loans sanctioned by banks to MFIs for on-lending to agriculture sector.

(vii) Outstanding deposits under RIDF and other eligible funds with NABARD on account of priority sector
shortfall.

(viii) Loans up to ₹50 crore to Start-ups, as per definition of Ministry of Commerce and Industry, Govt. of India
that are engaged in agriculture and allied services.

www.edutap.co.in
Loans for Food and Agro-processing up to an aggregate sanctioned limit of ____X_____per borrower from the
banking system will be included in the priority sector lending.
What will come in place of X?

A. 20 CRORE
B. 40 CRORE
C. 60 CRORE
D. 80 CRORE
E. 100 CRORE

Answer-E

www.edutap.co.in
 On Lending for Agriculture
❑ Bank credit extended to registered NBFC-MFIs and other MFIs (Societies, Trusts etc.) which are members of
RBI recognised SRO for the sector, for on-lending to individuals and also to members of SHGs / JLGs will be
eligible for categorisation as priority sector advance .

❑ Bank credit to registered NBFCs (other than MFIs) towards on-lending for ‘Term lending’ component under
agriculture will be allowed up to ₹ 10 lakh per borrower .

www.edutap.co.in
 Lending to Non Corporate Farmers
❑ All domestic banks (other than UCBs) and foreign banks with more than 20 branches are directed to ensure
that the overall lending to Non-Corporate Farmers (NCFs) does not fall below the system-wide average of
the last three years’ achievement which will be separately notified every year.

❑ The applicable target for lending to the non-corporate farmers for FY 2020-21 will be 12.14% of ANBC or
CEOBE whichever is higher. All efforts should be made by banks to reach the level of 13.5 percent of ANBC

www.edutap.co.in
 Categories Under PSL
Categories Under PSL:

Micro, Small and

Agriculture
Medium Enterprises

Export Credit Education

Housing Social Infrastructure

Renewable Energy Others

NOTE: The others category includes personal loans to weaker section, loans to distressed persons, loans to state
sponsored organizations for SC/ST.

www.edutap.co.in
MSME Sector
Old Criteria

www.edutap.co.in
 MSME Sector
New Criteria

❑ A micro enterprise, where the investment in Plant and Machinery or Equipment does not exceed one crore
rupees and turnover does not exceed five crore rupees.

❑ A small enterprise, where the investment in Plant and Machinery or Equipment does not exceed ten crore
rupees and turnover does not exceed fifty crore rupees.

❑ A medium enterprise, where the investment in Plant and Machinery or Equipment does not exceed fifty
crore rupees and turnover does not exceed two hundred and fifty crore rupees.

❑ It is to be noted that for an enterprise to come under the category of MSME it has to fulfill both
investment and turn over conditions.

❑ Also, under the new definition, the differentiation between the manufacturing and service based MSMEs
are being removed.
 Sub Target- MSME
Domestic scheduled commercial banks and Foreign banks with 20 branches and above:
7.5 percent of ANBC or Credit Equivalent Amount of Off-Balance Sheet Exposure, whichever is higher.

Foreign banks with less than 20 branches:

Not applicable.

Important Note: All loans to units in the KVI (Khadi and Village Industries) sector will be eligible for
classification under the sub-target of 7.5 percent prescribed for Micro Enterprises under priority sector.

www.edutap.co.in
All loans to units in the KVI (Khadi and Village Industries) sector will be eligible for classification under the sub-
target of 7.5 percent prescribed for ______X_______ under priority sector.
What will come in place of X?

A. Agriculture
B. Micro Industries
C. Export credit
D. Social Infrastructure
E. Others

Answer-B

www.edutap.co.in
 Sub Target- MSME
Other Finance to MSMEs:
I. Loans up to ₹50 crore to Start-ups, as per definition of Ministry of Commerce and Industry.

II. Loans to entities involved in assisting the decentralized sector in the supply of inputs to and marketing of
outputs of artisans, village and cottage industries.

III. Loans to co-operatives of producers in the decentralized sector viz. artisans, village and cottage industries.

IV. Loans sanctioned by banks to MFIs for on-lending to MSME sector.

V. On-lending by registered NBFCs (other than MFIs) to Micro & Small Enterprises.

VI. Credit outstanding under General Credit Cards (including Artisan Credit Card, Laghu Udyami Card,
Swarojgar Credit Card, and Weaver’s Card etc. in existence and catering to the non-farm entrepreneurial
credit needs of individuals).

www.edutap.co.in
 Sub Target- MSME
VI. Overdrafts extended by banks under Pradhan Mantri Jan DhanYojana (PMJDY) accounts will qualify as
achievement of the target for lending to Micro Enterprises. Overdraft limit to Pradhan Mantri Jan-Dhan
Yojana (PMJDY) account holder has been raised to ₹10,000/-, age limit of 18-60 years has been revised to
18-65 years.

VII. Outstanding deposits with SIDBI and MUDRA Ltd. on account of priority sector shortfall.

Important Note: To ensure that MSMEs do not remain small and medium units merely to remain eligible for
priority sector status, the MSME units will continue to enjoy the priority sector lending status up to three
years after they grow out of the MSME category concerned.

www.edutap.co.in
 Topics To be Discussed
Meaning, Background and History of PSL

Total Target Under PSL

Agriculture

Categories Under PSL

MSME

www.edutap.co.in
www.edutap.co.in