Priority Sector Lending

 Financial institutions all over the world usually operate to generate profits. They usually achieve this by investing in various developmental projects or lending to businesses. In case of India, banks and NBFCs (Non-Banking Financial Institutions) usually target big businesses which have a high probability of yielding huge profits. This definitely helps improve business, but it also leads to a divide in society.

There becomes a privileged section living in urban areas with proper access to BFSI (Banking, financial services and insurance) while there’s another section deprived or underserved of these privileges who usually live in rural and remote areas. To reduce this divide, Government of India and RBI came up with PSL (Priority Sector Lending) norms for banks. Banks are considered a very reliable source of transaction, deposition and credit in India. So, PSL targets on them could help society very effectively. To meet with their PSL targets, banks have to lend a part of their ANBC (Adjusted Net Bank Credit) as PSL towards certain sectors like agriculture, MSME (Micro Small and Medium Enterprises), Export Credit, Education, Housing, Social Infrastructure, Renewable Energy. There are special provisions for weaker sections of society like STs and women. The respective percentage targets in these sections are revised by RBI from time to time. These targets vary for RRBs, SFBs, Foreign banks and domestic banks.

RBI has also introduced a system of PSLC (Priority Sector Lending Certificates) to promote competition by ensuring that banks who surpass these targets can actually sell extra quota of trade to other banks who fail to meet the same.

This has also helped promote farm credit to small and marginal farmers. MSMEs received a major boost, particularly the businesses which are led by people from the weaker sections.

Overall, PSLC has been a boon to India’s financial world.  

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