What is Priority Sector Lending (PSL)?
PSL ensures banks lend to key sectors critical for India’s growth, like agriculture, MSMEs, education, and affordable housing.
Goal: Reduce inequality, boost rural development, and support weaker sections.
Key Milestones
| Year | Event |
|---|---|
 1968 | Introduced by the National Credit Council. |
 1972 | RBI formalized PSL categories. |
 1980 | Target set at 40% of bank loans by 1985. |
PSL Targets (2024)
| Category | Target (% of ANBC)* |
|---|---|
| Overall | 40% |
Agriculture  | 18% |
Small & Marginal Farmers  | 10% |
Weaker Sections   | 12% |
Micro Enterprises  | 7.5% |
*ANBC = Adjusted Net Bank Credit
(Calculated as: Bank Credit – Bills + Deposits with NABARD/NHB/SIDBI/MUDRA – Exemptions)
Eligible Sectors
| Sector | Examples |
|---|---|
 Agriculture | Farm loans, solar pumps, cold storage. |
 MSMEs | Loans for small factories, shops, or services. |
 Education | Student loans (India/abroad). |
 Housing | Affordable homes (<₹25 lakh). |
 Renewable Energy | Solar panels, windmills. |
 Social Infrastructure | Schools, hospitals, sanitation. |
Regional Adjustments
| Region Type | PSL Weightage | Purpose |
|---|---|---|
| High-Credit Districts (Urban) | 90% | Prevent over-lending. |
| Low-Credit Districts (Rural) | 125% | Incentivize rural lending. |
Challenges in PSL
- Urban Bias
: More loans to cities, neglecting villages. - Missed Targets
: Banks struggle with agriculture/weaker sections. - Loan Quality
: Focus on compliance over genuine need.
Why PSL Matters
- Lifts farmers, women SHGs, and low-income groups.
- Fuels growth in MSMEs and renewable energy.
- Reduces regional disparities.
MCQ
What is the overall target for Priority Sector Lending (PSL) for domestic scheduled commercial banks?
A. 33.33% of ANBC
B. 40% of ANBC
C. 18% of ANBC
D. 25% of ANBC
Answer: B
Who introduced the concept of PSL in India?
A. Ministry of Finance
B. Reserve Bank of India
C. National Credit Council
D. NABARD
Answer: C
What is the target for agricultural credit under PSL?
A. 40% of ANBC
B. 18% of ANBC
C. 12% of ANBC
D. 33% of ANBC
Answer: B
What percentage of PSL is allocated to Small and Marginal Farmers (SMFs)?
A. 8%
B. 10%
C. 7.5%
D. 5%
Answer: B
What is the sub-target for micro enterprises under PSL?
A. 10% of ANBC
B. 7.5% of ANBC
C. 5% of ANBC
D. 15% of ANBC
Answer: B
How much credit must banks allocate to weaker sections under PSL?
A. 10%
B. 12%
C. 15%
D. 8%
Answer: B
Which of the following is NOT a category under PSL?
A. Agriculture
B. MSMEs
C. Large Corporate Loans
D. Renewable Energy
Answer: C
Loans for education fall under which PSL category?
A. Social Infrastructure
B. Agriculture
C. Others
D. Education
Answer: D
Which of these is included under the Agriculture category in PSL?
A. Loans for urban housing development
B. Loans for solar pumps on farmland
C. Loans for IT startups
D. Loans for exporting manufactured goods
Answer: B
What is the weightage assigned to incremental PSL in low-credit districts?
A. 90%
B. 125%
C. 100%
D. 110%
Answer: B
How is Adjusted Net Bank Credit (ANBC) calculated for PSL?
A. Bank Credit + RIDF Deposits
B. Net Bank Credit – Rediscounted Bills
C. Net Bank Credit + Adjustments for PSL targets
D. Net Bank Credit – Infrastructure Bonds
Answer: C
Which of the following is an eligible PSL category for renewable energy?
A. Loans for biomass power projects
B. Loans for urban transportation systems
C. Loans for rural bridges
D. Loans for industrial parks
A. Loans for biomass power projects
Which statement is TRUE about PSL?
A. It is mandatory for foreign banks with less than 20 branches.
B. It promotes financial inclusion.
C. It applies only to private sector banks.
D. PSL targets are limited to rural areas.
Answer: B
What happens if a bank fails to meet PSL targets?
A. Penalties are imposed by RBI.
B. Funds are deposited with NABARD or RIDF.
C. Loans are transferred to non-priority sectors.
D. The targets are waived off.
Answer: B
Why was PSL introduced?
A. To boost industrial exports.
B. To ensure equitable credit flow to key sectors.
C. To increase foreign investments.
Answer: B