The full form of PSL in banking is Priority Sector Lending. PSL refers to a lending mandate issued by the Reserve Bank of India (RBI), requiring banks to allocate a specific percentage of their total lending to sectors that are vital for the economic development of the country but may not receive adequate credit otherwise. These sectors include agriculture, micro, small & medium enterprises (MSMEs), education, housing, and weaker sections of society.
Purpose of Priority Sector Lending
The PSL framework ensures that underserved sectors of the economy receive adequate credit support, contributing to inclusive growth. The key objectives include:
- Financial Inclusion: Providing banking access to marginalized sectors.
- Support for Employment Generation: Facilitating credit to MSMEs and self-employment initiatives.
- Agricultural Growth: Ensuring sufficient funds for farmers and allied activities.
PSL Targets for Banks
As per RBI guidelines, domestic and foreign banks with more than 20 branches must allocate 40% of their Adjusted Net Bank Credit (ANBC) or Credit Equivalent of Off-Balance Sheet Exposure to PSL sectors. Small finance banks and regional rural banks (RRBs) have a 75% PSL target.
Categories under PSL
- Agriculture: Includes loans to farmers for crop production, irrigation, and allied activities.
- MSMEs: Credit support to small and medium enterprises for business expansion.
- Education Loans: Financing higher education for students from weaker sections.
- Housing: Loans for affordable housing and slum redevelopment projects.
- Renewable Energy: Funding for projects related to solar, wind, and biomass energy.