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RBI issues directions to banks about PSL targets

The RBI has issued the directions regarding targets and classification of priority sector lending (PSL) of commercial banks including RRBs, SFBs, local area banks and urban cooperative banks, other than salary earners’ banks. The banks should put in place proper internal controls and systems to ensure that PSL is for approved purposes.

For domestic commercial banks (excluding RRBs & SFBs) and foreign banks with 20 branches or above, total PSL will be 40% of Adjusted Net Bank Credit (ANBC) or Credit Equivalent of Off-Balance Sheet Exposure (CEOBE) whichever is higher. For UCBs, total PSL will be 40% of ANBC or CEOBE, whichever is higher, which shall be increased to 75% of ANBC or CEOBE, whichever is higher, with effect from March 31, 2024. UCBs shall comply with the stipulated target as per the milestones of 60% by March 31, 2023 and 75% by March 31, 2024.

The targets for lending to small and marginal farmers (SMFs) will be revised upwards from FY 2021-22 as 9.5% by 2022-23 and 10% by 2023-24. All domestic banks (other than UCBs) and foreign banks with more than 20 branches are directed to ensure that the overall lending to non-corporate farmers (NCFs) does not fall below the system-wide average of the last three years’ achievement, which will be separately notified every year.

All efforts should be made by banks to reach the level of 13.5% of ANBC. From 2021-22 onwards, a higher weight (125%) would be assigned to the incremental priority sector credit in the identified districts where the credit flow is comparatively lower (per capita PSL less than Rs 6000), and a lower weight (90%) would be assigned to incremental priority sector credit in the identified districts where the credit flow is comparatively higher (per capita PSL greater than Rs 25,000). The lists of both categories of districts will be valid for a period up to FY 2023-24.

Bank credit extended to registered NBFC-MFIs and other MFIs, for on-lending to individuals and also to members of SHGs/JLGs will be eligible for categorisation as PSL under agriculture subject to certain conditions. Bank credit to registered NBFCs (other than MFIs) towards on-lending for the “term lending’ component under agriculture will be allowed up to Rs 10 lakh per borrower subject to certain conditions.

Export Credit (other than in agriculture and MSME) will be allowed to be classified as PSL for domestic commercial banks/ wholly-owned subsidiaries (WoS) of foreign banks/ SFBs/ UCBs), provided incremental export credit over corresponding date of the preceding year, is up to 2% of ANBC or CEOBE whichever is higher, subject to Rs 40 crore per borrower.

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