ERD officials suggested that infrastructure funding done by banks from their own resources should either be classified as PSL or be excluded from the calculation of ANBC for PSL achievement
State Bank of India’s economic research department (ERD) has suggested revision in the priority sector lending (PSL) guidelines through an increase in the limits of various categories of loans, including home loans and education loans that qualify as PSL.Further, ERD officials suggested that infrastructure funding done by banks from their own resources should either be classified as PSL or be excluded from the calculation of ANBC (adjusted net bank credit) for PSL achievement. Also, a separate head needs to be created under ‘climate sustainability finance’ under PSL for activities that contribute to climate sustainabilityPSL mechanismThe RBI had devised PSL mechanism in 1972 to ensure credit flow to underserving sectors. Since then, it has ben revised periodically. “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,” said Soumya Kanti Ghosh, Group Chief Economic Adviser, SBI.The Government Viksit Bharat objective seeks to transform India into a developed entity by 2047. A primary economic objective is to achieve a substantial GDP, with targets ranging from $30 trillion to $40 trillion by 2047.Given that growth in home loan under PSL is not in tandem with growth in overall housing loan portfolio, the ERD proposed that limits to housing sector may be reasonably increased (say ₹1 crore in metro centres and ₹75 lakh for other centres).“The project cost limits also need to be increased with a provision of 25 per cent margin. We also propose other intermediated housing loans by banks may be made eligible for PSL classification,” said the ERD economists. Under extent guidelines, a housing loan will be classified as PSL it satisfies loan limit as well as dwelling cost criteria prescribed for a particular centre.So, for centres with a population of 50 lakh and above, the maximum dwelling cost is ₹63 lakh and the loan loan limit is ₹50 lakh. For centres with a population of 10 lakh and above but below 50 lakh, the maximum dwelling cost is ₹57 lakh and the loan loan limit is ₹45 lakh. For centres with population below 10 lakh, the maximum dwelling cost is ₹44 lakh and the loan loan limit is ₹35 lakh.In view of the substantial increase in the cost of education over the past few years, the ERD has proposed that the loan limit of ₹25 lakh to individuals for educational purposes eligible for PSL classification may be reasonably increased to a higher level (for example ₹50 lakh).The ERD recommended that under PSL, the limit on bank loans to borrowers for renewable energy-based power generation and for renewable energy based public utilities — street lighting systems, remote village electrification — be upped from ₹35 crore to ₹100 crore. For individual households (roof top solar plants), the loan limit has been proposed to be increased to ₹2 crore from ₹10 lakh per borrower.In the case of food & agro processing loan as well as agri infra loans, the ERD recommended upping the limit per borrower to ₹200 crore for individual banks, with aggregate sanctioned limits of ₹500 crore per borrower (from ₹100 crore) from the banking system under Agriculture PSL eligibilityIn the case of social infrastructure, the ERD suggested revising upwards the loan limits for schools and healthcare facilities to ₹15 crore (from ₹8 crore) and ₹25 crore (from ₹12 crore), respectively, in all cities.Export creditIn the case of export credit, the ERD suggested either removing or enhancing the cap of ₹50 crore per exporter for PSL classification to a reasonable level of, say, ₹200 crore. It also recommended removal of upper cap of 2 per cent of a bank’s credit under PSL.In the case of bank loans to NBFCs for on-lending, the loan limit per borrower may be revised upward say ₹25 lakh for agri and ₹50 lakh for others. Loans under all government sponsored schemes to be classified as micro enterprises and weaker sections irrespective of presence of URN (update request number for Aadhar).Referring to a cost-benefit analysis of Rural Infrastructure Development Fund (RIDF) vis-à-vis PSLC (priority sector lending certificate), which indicates that it is profitable for banks to purchase PSLC compared to investment in RIDF, SBI economists recommended that investments in RIDF may be exempt from purview of risk weight and CRAR (capital to risk-weighted assets ratio) calculation.These deposits are regulatory in nature just like SLR (statutory liquidity ratio) requirements of the bank and may be considered as sovereign deposits, they added.Further, the rate of Interest charged on RIDF deposits for shortfall of sub-targets may be kept at minimum prevailing bank rate and penal charges may be dispensed with. The RIDF was set up by the government in 1995-96 for financing ongoing rural Infrastructure projects. The Fund is maintained by the National Bank for Agriculture and Rural Development (NABARD). Domestic commercial banks contribute to the Fund to the extent of their shortfall in stipulated priority sector lending to agriculture.Published on July 7, 2026
