🌾 Priority Sector Lending (PSL) Simplified

🌟 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.


πŸ“… Key Milestones

YearEvent
πŸ›οΈ 1968Introduced by the National Credit Council.
πŸ“œ 1972RBI formalized PSL categories.
🎯 1980Target set at 40% of bank loans by 1985.

🎯 PSL Targets (2024)

CategoryTarget (% of ANBC)*
Overall40%
Agriculture 🌾18%
Small & Marginal Farmers πŸ‘©πŸŒΎ10%
Weaker Sections πŸ§‘πŸ€πŸ§‘12%
Micro Enterprises 🏭7.5%

*ANBC = Adjusted Net Bank Credit
(Calculated as: Bank Credit – Bills + Deposits with NABARD/NHB/SIDBI/MUDRA – Exemptions)


🏷️ Eligible Sectors

SectorExamples
🌱 AgricultureFarm loans, solar pumps, cold storage.
πŸ› οΈ MSMEsLoans for small factories, shops, or services.
πŸŽ“ EducationStudent loans (India/abroad).
🏠 HousingAffordable homes (<β‚Ή25 lakh).
β˜€οΈ Renewable EnergySolar panels, windmills.
πŸ₯ Social InfrastructureSchools, hospitals, sanitation.

πŸ“Š Regional Adjustments

Region TypePSL WeightagePurpose
High-Credit Districts (Urban)90%Prevent over-lending.
Low-Credit Districts (Rural)125%Incentivize rural lending.

🚧 Challenges in PSL

  1. Urban BiasΒ πŸ™οΈ: More loans to cities, neglecting villages.
  2. Missed Targets ❌: Banks struggle with agriculture/weaker sections.
  3. Loan QualityΒ πŸ“‰: Focus on compliance over genuine need.

πŸ’‘ Why PSL Matters

  • Lifts farmers, women SHGs, and low-income groups.
  • Fuels growth in MSMEs and renewable energy.
  • Reduces regional disparities.

πŸ“ 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