Priority Sector Lending (PSL) is a critical piece of compliance required in the Indian Banking and Finance industry. This presentation (along with the part 1, posted earlier gives a quick overview of the priority sector lending concepts. The regulation for PSL is quite clear and increasingly Banks are mandated by the regulator - RBI to ensure compliance to PSL. Brought to you by www.sineedge.com

1. Priority Sector Lending (PSL) in Banking
industry

2. INTRODUCTION
• Banks are catalysts in development of various sectors in
economy
• In a developing economy some sectors of society need special
& priority attention as they are starved for capital.
• The Reserve Bank of India (RBI), has clearly specified the
sectors that are termed the priority sectors
• These sectors are termed the ‘Priority Sectors’
• The lending that is done to them is referred to as ‘Priority
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Sector Lending’
• RBI has come out with its policies, whereby it makes it
compulsory for Banks to take credit exposure on Priority
Sector.
• This explains the need for PSL by Commercial Banks

3. Where it all began - Conception of PSL
Meeting of National Credit Council held in July 1968.
Emphasis laid on Commercial Banks to
increase their involvement in financing of
Priority Sector.
Priority Sector Broadly defined to include
Agriculture & Small Scale Industries.
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4. Where it all began - Conception of PSL
Report submitted by Informal Study Group (constituted by RBI in May
1971) on statistics relating to advances to Priority sector in 1972
Description of Priority Sector Formalized
1. RBI, prescribed a modified return for reporting
priority sector advances
2. Certain guidelines were issued in this connection
indicating the scope of the items to be included
under the various categories of priority sector
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5. Where it all began - Conception of PSL
5
Share in Priority Sector Lending
Banks were advised to raise share of Priority Sector
lending in their aggregate lending to 33.33% by
March 1979.
1. It was agreed at a meeting of the Union Finance Minister
with the CEOs of Public Sector Banks to increase this lending
to 40% by March 1985.
2. Subsequently all commercial banks were advised to
increase their lending to this sector to 40% by March 1985.

6. Categories of Priority Sector
As per revised guidelines with effect from 20th July 2012
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AGRICULTURE
MICRO & SMALL ENTERPRISES
EDUCATION
HOUSING
EXPORT CREDIT
OTHERS

7. Targets for Priority Sector Lending for Domestic and Foreign banks in India
CATEGORY
DOMESTIC COMMERCIAL
BANKS AND FOREIGN
BANKS WITH >= 20
BRANCHES
FOREIGN BRANCHES
WITH < 20 BRANCHES
Total priority
sector target
40% of ANBC*
OR
Credit equivalent amount
of Off-Balance Sheet
exposure #
(Whichever is higher)
32% of ANBC*
OR
Credit equivalent amount
of Off-Balance Sheet
exposure #
(Whichever is higher)
• ADJUSTED NET BANK CREDIT. Please see the Detailed Explanation of ANBC
here = > http://www.sineedge.com/blog/understanding/
7

8. Targets for Priority Sector Lending for Domestic and Foreign banks in India
CATEGORY
DOMESTIC COMMERCIAL
BANKS AND FOREIGN
BANKS WITH >= 20
BRANCHES
FOREIGN BRANCHES
WITH < 20 BRANCHES
Total Agriculture
sector target
18% of ANBC*
OR
Credit equivalent amount of
Off-Balance Sheet exposure
(Whichever is higher)
No specific target – forms part
of total priority sector target
Notes :
1. Indirect lending in excess of 4.5% of ANBC or credit equivalent amount of Off-Balance Sheet
Exposure, whichever is higher, will not be reckoned for computing achievement under 18 %
target .
2. However, all agricultural loans under the categories 'direct' and 'indirect' will be reckoned in
computing achievement under the overall priority sector target of 40 %.
• ADJUSTED NET BANK CREDIT. Please see the Detailed Explanation of ANBC
here = > http://www.sineedge.com/blog/understanding/
8

9. Targets for Priority Sector Lending for Domestic and Foreign banks in India
CATEGORY
DOMESTIC COMMERCIAL BANKS AND
FOREIGN BANKS WITH >= 20 BRANCHES
FOREIGN
BRANCHES WITH <
20 BRANCHES
Micro &
Small
Enterprises
All lending included in overall PSL target of 40%
No specific
target – forms
part of total
priority sector
target
40% of advance to this category to go to following:
• Micro (Mfg) Enterprises with investment in
P&M upto 10 Lacs.
• Micro (service) enterprises having investment
in equipment up to Rs. 4 lakh
20% of advance to this category to go to following:
• Micro (Mfg) enterprises with investment in
P&M above Rs.10 lakh and up to Rs.25 lakh
• Micro (service) enterprises with investment in
equipment above Rs.4 lakh and up to Rs.10
lakh
• ADJUSTED NET BANK CREDIT. Please see the Detailed Explanation of ANBC
here = > http://www.sineedge.com/blog/understanding/
9

10. Targets for Priority Sector Lending for Domestic and Foreign banks in India
CATEGORY
DOMESTIC COMMERCIAL
BANKS AND FOREIGN
BANKS WITH >= 20
BRANCHES
FOREIGN BRANCHES
WITH < 20 BRANCHES
Export Credit
Export credit is not a
separate category.
Export credit to eligible
activities under
agriculture and MSE
will be reckoned for
priority sector lending
under respective
categories.
No specific target –
forms part of total
priority sector target

11. Targets for Priority Sector Lending for Domestic and Foreign banks in India
CATEGORY
DOMESTIC COMMERCIAL
BANKS AND FOREIGN
BANKS WITH >= 20
BRANCHES
FOREIGN BRANCHES
WITH < 20 BRANCHES
Advances to
weaker sections
10 % of ANBC*
Or
Credit equivalent
amount of Off-Balance
Sheet Exposure,
whichever is higher.
No specific target –
forms part of total
priority sector target
• ADJUSTED NET BANK CREDIT. Please see the Detailed Explanation of ANBC
here = > http://www.sineedge.com/blog/understanding/
11

12. Targets for Priority Sector Lending for Foreign banks in India with > = 20
For foreign banks with > = 20 branches, Priority
Sector Targets and sub-targets have to be
achieved within a maximum period of five years
starting from April 1, 2013 and ending on March
31, 2018 as per the action plans submitted by
them as approved by RBI. Any subsequent
reference to these banks in the circular, will be
in accordance to the approved plans.
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branches

13. You just learnt something on the basics of priority sector lending
in India…..
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