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RBI Revises Priority Sector Lending Norms
Context:
Reserve Bank of India (RBI) revised priority sector lending norms to promote small loans in economically disadvantaged districts with low average loan size.
More on News:
- From FY25, more weight (125%) will be given to fresh priority sector loans in districts with less availability of loans (less than 9000 per person).
- In districts with high loan availability (more than 42000 per person), the loan weightage will be 90%.
- RBI to rank districts based on per capita credit flow to priority sector.
- It will establish an incentive framework for districts with lower credit flow and a disincentive framework for districts with higher priority sector credit flow.
Priority Sector Lending (PSL)
- RBI directs banks to allocate funds to designated priority sectors of the economy that require credit and financial support.
- Banks are mandated to offer a percentage of their loans to specific sectors that tend to struggle or underperform, or that benefit the country as a whole, which ultimately boosts the economy.
- Banks must allocate a portion of their Adjusted Net Bank Credit (ANBC) or Credit Equivalent of Off-Balance Sheet Exposure (CEOSE) (whichever is higher) towards PSL.
- Targets for various institutions:
- The Scheduled commercial banks and foreign banks (with 20 or more branches) have a 40% target.
- The Regional Rural Banks (RRBs) and Small Finance Banks (SFBs) aim for 75%.
- The Urban Cooperative Banks (UCBs) are required to allocate 65% to PSL in FY 2024-25, increasing to 75% by FY 2025-26.
- When banks exceed their PSL targets and require additional funding, they can issue PSL certificates (PSLCs) up to the permissible limit for each sector.
- These certificates are tradable on the RBI’s e-Kuber platform.
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