In this detailed article, we’ll cover Priority Sector Lending (PSL) as per the latest RBI guidelines (2025).
If you are preparing for JAIIB or CAIIB exams, this topic is extremely important — both conceptually and from an MCQ perspective.
What is Priority Sector Lending (PSL)?
Priority Sector Lending refers to the areas that the Reserve Bank of India (RBI) considers important for the overall development of the economy.
Under this policy, all scheduled commercial banks are required to lend a specified portion of their total adjusted net bank credit (ANBC) to certain priority sectors.
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Objective of PSL
- To ensure adequate institutional credit to weaker sections and neglected sectors of the economy.
- To promote inclusive growth and financial inclusion.
- To support employment generation and rural development.
Overall PSL Targets (As per RBI)
- 40% of ANBC or Credit Equivalent of Off-Balance Sheet Exposure for Domestic Commercial Banks (except RRBs and SFBs)
- 75% for Regional Rural Banks (RRBs) and Small Finance Banks (SFBs)
- 32% for Foreign Banks with less than 20 branches
Categories of Priority Sector
The RBI has classified PSL into eight broad categories:
- Agriculture (including allied activities)
- Micro, Small and Medium Enterprises (MSME)
- Export Credit
- Education
- Housing
- Social Infrastructure
- Renewable Energy
- Others (including weaker sections, self-help groups, etc.)
1. Agriculture Sector
The agricultural sector is divided into:
- Farm Credit: Crop loans, medium/long-term loans, allied activities (dairy, poultry, etc.)
- Agriculture Infrastructure: Warehouses, cold storage, soil health labs, irrigation, etc.
- Ancillary Activities: Loans to farmers’ societies, FPOs, or PACS.
Target: 18% of ANBC to be lent to Agriculture, of which 8% must go to Small and Marginal Farmers.
2. Micro, Small & Medium Enterprises (MSME)
Loans to manufacturing or service enterprises are classified as MSME. The classification is based on investment and turnover as per the revised MSME definition (2020).
- Micro Enterprises: Investment ≤ ₹1 crore and turnover ≤ ₹5 crore
- Small Enterprises: Investment ≤ ₹10 crore and turnover ≤ ₹50 crore
- Medium Enterprises: Investment ≤ ₹50 crore and turnover ≤ ₹250 crore
Sub-target: 7.5% of ANBC to Micro Enterprises.
3. Export Credit
Loans extended by banks to exporters are included in PSL up to a limit of 2% of ANBC.
4. Education
Education loans up to ₹20 lakh are considered under PSL, whether domestic or abroad studies.
5. Housing
Housing loans up to ₹35 lakh in metro and ₹25 lakh in non-metro areas for individuals qualify as PSL, provided the overall property cost doesn’t exceed ₹45 lakh and ₹30 lakh respectively.
6. Renewable Energy
Loans for renewable energy projects (solar, wind, biomass) up to ₹30 crore per borrower and ₹10 lakh for households qualify under PSL.
7. Social Infrastructure
Includes loans up to ₹5 crore for building schools, health centers, drinking water facilities, etc., in rural areas.
8. Weaker Sections
This sub-category ensures that at least 12% of ANBC is allocated to weaker sections, including:
- Small and marginal farmers
- Scheduled Castes/Scheduled Tribes
- Artisans, village industries, and SHGs
Recent RBI Updates (2024–25)
- PSL certificates (PSLC) trading volume has grown substantially to promote compliance flexibility.
- Revised PSL targets for Small Finance Banks effective April 2024.
- New guidelines issued for climate finance and green lending inclusion under PSL.
Importance of PSL in Banking Exams
Every year, 8–10 MCQs are asked from this topic in JAIIB, CAIIB, and CCP exams. Understanding numerical limits, classifications, and sub-targets is crucial. You can revise these concepts quickly from the free downloadable PDF provided below.
📘 Download Free Study Material (PDF)
Also, don’t miss our detailed YouTube Lecture on Priority Sector Lending — explained in Hindi-English mix with MCQs and RBI updates.
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Conclusion
Priority Sector Lending (PSL) remains one of the most scoring topics for banking exams. A clear understanding of targets, sub-categories, and updates can help aspirants score high in both JAIIB and CAIIB.
Ensure to watch the YouTube Lecture on Priority Sector Lending and download the PDF for revision.
Keep preparing smartly — success will follow!
