Priority sector lending is a term used to describe lending to sectors of the economy that may not otherwise receive timely and adequate credit. The Reserve Bank of India assigns this role to banks, requiring them to provide a specified portion of their lending to specific sectors like agriculture and allied activities, micro- and small enterprises, education, housing for the poor, and other low-income groups and weaker sections. The goal of priority sector lending is to promote all-round development of the economy, rather than focusing only on the financial sector.
The broad categories of priority sector for all scheduled commercial banks in India are as follows:
- Agriculture
- Micro, Small and Medium Enterprises (MSMEs)
- Export Credit
- Education
- Housing
- Social Infrastructure
- Renewable Energy
- Others
Priority sector loans to the following borrowers are considered under the Weaker Sections category:
- Small and marginal farmers
- Artisans, village and cottage industries where individual credit limits do not exceed Rs 1 Lakh
- Beneficiaries of Swarnajayanti Gram Swarozgar Yojana (SGSY), now National Rural Livelihood Mission (NRLM)
- Scheduled Castes and Scheduled Tribes
- Beneficiaries of Differential Rate of Interest (DRI) scheme
- Loans to individual women beneficiaries up to Rs 1 Lakh per borrower
- Account holders under Pradhan Mantri Jan Dhan Yojana (PMJDY)
When banks overreach their priority sector lending targets and need additional funding to raise funds for the priority sectors, they are able to issue Priority Sector Lending Certificates (PSLCs) only to the extent of the amount banks are allowed to lend in that specific sector. These certificates can be traded on RBI’s e-Kuber platform.
Priority sector lending is designed to promote the development of weaker sections within the country, thereby supporting the economy in India.
