Priority sector lending (PSL) is a lending requirement administered by the RBI, requiring banks to give a minimum proportion of their loans to sectors of development importance or the sectors that have difficulty of getting loans.
The RBI is periodicall updating the sectors that are eligible to get priority sector lending and the limts of loans. Similarly, the regulations identifies institutions that are obliged to provide these loans. Basically, the PSLs are aimed to provide institutional credit to those sectors and segments for which it is difficult to get credit. According to priority sector norms, scheduled commercial banks have to give 40% of their loans (measured in terms of Adjusted Net Bank Credit or ANBC) to the identified priority sectors in accordance with the RBI regulations. There are specifict limits for Commercial Banks including RRBs, Small Finance Banks, Local Area Banks and Urban Coopertive Banks. The regulations are modified periodically by setting limits for subsectors and other qualifications for the beneficiary groups. If these targets are not realized, banks have to finance the development programmes implemented by the government for the specific sectors.
