SBI Research calls for comprehensive overhaul of priority sector lending norms to align with Viksit Bharat goals
New Delhi, July 8
Priority Sector Lending guidelines need a comprehensive review to align with India's evolving financing needs and the Viksit Bharat 2047 vision, with greater focus on infrastructure, climate finance, renewable energy and higher lending limits across key sectors, according to an SBI Research report.
"Possibly, an opportune time has now come to assess future needs of financial inclusion and priority sector lending and make policy changes needed to ensure access to finance to weaker sections in line with Viksit Bharat objective," The report said.
The report added that the existing PSL framework, introduced in 1972 to improve credit flow to underserved sectors, has served its purpose but now requires reforms to address emerging priorities such as ESG financing, sustainable development, infrastructure financing and the electric vehicle ecosystem. It noted that while banks are comfortably meeting the overall PSL target of 40 per cent of Adjusted Net Bank Credit (ANBC), the framework should evolve to support India's long-term growth ambitions.
SBI Research proposed increasing lending limits under several existing PSL categories, including raising the renewable energy loan limit from Rs 35 crore to Rs 100 crore, increasing the education loan ceiling eligible for PSL from Rs 25 lakh to Rs 50 lakh, revising housing loan limits, expanding social infrastructure loan limits, and enhancing bank lending limits to NBFCs for on-lending.
The report also recommended widening the scope of PSL by including infrastructure lending, creating a separate category for climate sustainability finance, allowing investments in green and ESG bonds to qualify under PSL, and classifying loans under government-sponsored schemes as lending to micro enterprises and weaker sections. According to SBI Research, these measures would better reflect the country's changing development priorities while improving financial inclusion.
Looking ahead, the report said infrastructure financing should receive greater policy support as India requires significant long-term investment to achieve its 2047 development goals. It suggested either granting priority sector status to all infrastructure loans or excluding such lending from ANBC calculations for PSL compliance, arguing that existing rules do not adequately recognise banks' infrastructure financing efforts.
SBI Research also called for reforms to the Rural Infrastructure Development Fund (RIDF), saying changes in capital treatment and interest provisions could improve incentives for banks. It noted that banks currently find it more beneficial to purchase Priority Sector Lending Certificates (PSLCs) than invest in RIDF, highlighting the need to rebalance the framework.
The report added that revising PSL norms in line with emerging sectors and expanding eligible categories could strengthen credit delivery to areas critical for India's next phase of economic growth while supporting the broader Viksit Bharat agenda.
— ANI
Reader Comments
This is interesting. I work in ESG finance, and bringing climate sustainability into PSL could be a game-changer. But I'm wary: banks already meet their targets by buying PSLCs rather than actually lending. If we add more categories without fixing that loophole, it's just window dressing. Need stricter compliance.
Education loan limit from 25 lakh to 50 lakh? That's the kind of change that actually helps middle-class families like mine. My brother had to take multiple loans for his engineering abroad. But will banks actually lend under PSL rates? They always find excuses. 😒
Good proposals, but I have a concern: if we include infrastructure lending in PSL, won't that crowd out the original purpose of helping small farmers and tiny businesses? The weaker sections still need access. We must not lose sight of that while chasing big-ticket projects like bullet trains. Balance is key.
I run a small solar installation business. If renewable energy loans go from Rs 35 crore to Rs 100 crore under PSL, that's huge for firms like mine. Banks will take us seriously. But the report also needs to address how NBFCs get funds — they're often the ones reaching rural areas. Good first step though! 👍
The RIDF point resonates. I've seen banks prefer buying PSLCs over putting money into rural infrastructure because it's easier. If we're serious about Viksit Bharat, we need to make rural lending attractive, not a burden. Maybe tax incentives for banks that actually lend
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