PRIORITY SECTOR LENDING (Targets & Classification 2024)

The concept of ‘Priority sector lending’ focuses on the idea of directing the lending of the banks toward a few specified sectors and activities in the economy. The term ‘priority sector’ indicates those activities which have national importance and have been assigned priority for development. These primarily include agriculture, small industries, etc. The case has further been that these sectors and activities were neglected for bank credit and therefore for accessibility of credit, these neglected ones are considered to be a priority for providing credit.

Priority Sector Lending – Targets and Classification 

RBI has updated Master Direction on priority sector lending guidelines via its Master Circular RBI/FIDD/2020-21/72 Updated as of July 27, 2023. These Directions shall be called the Reserve Bank of India (Priority Sector Lending – Targets and Classification) Directions, 2020. These Directions shall come into effect on the day they are placed on the official website of the Reserve Bank of India. It is Updated as of July 27, 2023.

Applicability

The provisions of these Directions shall apply to every Commercial Bank [including Regional Rural Bank (RRB), Small Finance Bank (SFB), Local Area Bank] and Primary (Urban) Co-operative Bank (UCB) other than Salary Earners’ Bank licensed to operate in India by the Reserve Bank of India.

Definitions / Clarifications

In these Directions, unless the context otherwise requires, the terms herein shall bear the meanings assigned to them below:

(i) ‘Urban Co-operative Bank’ or ‘UCB’ means a Primary Co-operative Bank as defined under Section 5(ccv) of the Banking Regulation Act, 1949 read with Section 56 of the Act.

(ii) “On-lending” means loans sanctioned by banks to eligible intermediaries for onward lending for the creation of priority sector assets. The average maturity of priority sector assets thus created by the eligible intermediaries should be co-terminus with the maturity of the bank loan.

(iii) Contingent liabilities/off-balance sheet items do not form part of priority sector achievement. However, foreign banks with less than 20 branches have an option to reckon the Credit Equivalent of Off-Balance Sheet Exposures (CEOBE) extended to borrowers for eligible priority sector activities for achievement of priority sector target, subject to the condition that the CEOBE (both priority sector and non-priority sector excluding interbank exposure) should be added to the Adjusted Net Bank Credit (ANBC) in the denominator for computation of PSL targets.

(iv) Off-balance sheet interbank exposures are excluded for computing CEOBE for the priority sector targets.

(v) The term “all-inclusive interest” includes interest (effective annual interest), processing fees, and service charges.

TARGET / SUB-TARGET FOR PRIORITY SECTOR LENDING

The target set under priority sector lending are as under:

• Domestic commercial banks (excl. RRBs & SFBs) & foreign banks with 20 branches and above have to achieve the total Priority Sector Target of 40 percent of Adjusted Net Bank Credit (ANBC) or Credit Equivalent Amount of Off-Balance Sheet Exposure (CEOBE), whichever is higher.
• Foreign banks with less than 20 branches have to achieve the total Priority Sector Target 40 percent of ANBC or CEOBE whichever is higher; out of which up to 32% can be in the form of lending to Exports and not less than 8% can be to any other priority sector.
• Regional Rural Banks have to achieve the total Priority Sector Target 75 percent of ANBC or CEOBE whichever is higher; However, lending to Medium Enterprises, Social Infrastructure, and Renewable Energy shall be reckoned for priority sector achievement only up to 15 percent of ANBC.
• Small Finance Banks have to achieve the total Priority Sector Target 75 percent of ANBC as computed in the table given below or CEOBE whichever is higher.

SUMMARY OF THE PRIORITY SECTOR LENDING TARGETS
Categories	Domestic commercial banks & foreign banks with 20 branches and above	Foreign banks with less than 20 branches	Regional Rural Banks	Small Finance Banks
Total Priority Sector	40 percent of ANBC or CEOBE, whichever is higher.	40 per cent of ANBC or CEOBE whichever is higher;	75 per cent of ANBC or CEOBE whichever is higher;	75 per cent of ANBC  or CEOBE whichever is higher.
Agriculture	18 per cent of ANBC or CEOBE, whichever is higher; out of which a target of 10 percent is prescribed for SMFs	Not applicable	18 per cent ANBC or CEOBE, whichever is higher; out of which a target of 10 percent is prescribed for SMFs	18 per cent of ANBC or CEOBE, whichever is higher; out of which a target of 10 percent is prescribed for SMFs
Micro Enterprises	7.5 per cent of ANBC or CEOBE, whichever is higher	Not applicable	7.5 per cent of ANBC or CEOBE, whichever is higher	7.5 per cent of ANBC or CEOBE, whichever is higher
Advances to Weaker Sections	12 percent of ANBC or CEOBE, whichever is higher	Not applicable	15 percent of ANBC or CEOBE, whichever is higher	12 percent of ANBC or CEOBE, whichever is higher
# Revised targets for Agriculture and SMFs will be implemented in a phased manner

The targets for lending to SMFs and Weaker Sections shall be revised upwards from FY 2021-22 onwards as follows:

Categories	Primary Urban Co-operative Bank
Total Priority Sector	40 percent of ANBC or CEOBE, whichever is higher, which shall stand increased to 75 percent of ANBC or CEOBE, whichever is higher, with effect from March 31, 2024. UCBs shall comply with the stipulated target as per the following milestones:
	Existing target	March 31, 2021		March 31, 2022	March 31, 2023		March 31, 2024
	40%	45%		50%	60%		75%
Micro Enterprises	7.5 percent of ANBC or Credit Equivalent Amount of Off-Balance Sheet Exposure, whichever is higher
Advances to Weaker Sections	12 percent # of ANBC or credit equivalent amount of Off-Balance Sheet Exposure, whichever is higher.
# Revised targets for weaker sections will be implemented in a phased manner as indicated below
Financial Year			Small and Marginal Farmers target *			Weaker Sections target ^
2020-21			8%			10%
2021-22			9%			11%
2022-23			9.5%			11.5%
2023-24			10%			12%
* Not applicable to UCBs,   ^ Weaker Sections target for RRBs will continue to be 15% of ANBC or CEOBE, whichever is higher.

 Computation of ANBC are as under:

ADJUSTED NET BANK CREDIT (ANBC)
Bank Credit in India (As prescribed in item No. VI of Form ‘A’ as on 31st March) under Sec 42 [2] of RBI Act, 1934.	I
Bills re-discounted with RBI and other approved Financial institutions	II
Net Bank Credit (NBC)	III (I-II)
Outstanding Deposits under RIDF and other eligible funds with NABARD, NHB, SIDBI and MUDRA Ltd instead of non-achievement of priority sector lending targets/sub-targets + outstanding PSLCs	IV
Eligible amount for exemptions on the issuance of long term bonds for infrastructure and affordable housing as per circular DBOD.BP.BC.No. 25/08.12.014/2014-15 dated July 15, 2014	V
Eligible advance extended in India against the incremental FCNR(B)/NRE deposits, qualifying for an exemption from CRR/SLR requirements.	VI
Investments made by public sector banks in the Recapitalization Bonds floated by the Government of India.	VII
Other investments eligible to be treated as priority sector (e.g. investments in securitised assets)	VIII
Face Value of securities acquired and kept under HTM category under the TLTRO 2.0 (Press Release 2019-2020/2237 dated April 17, 2020, read with Q.11 of FAQ and SLF-MF- Press Release 2019-2020/2276 dated April 27, 2020, and also Extended Regulatory Benefits under SLFMF Scheme vide Press Release 2019-2020/2294 dated April 30, 2020.	IX
Bonds/debentures in Non-SLR categories under HTM category	X
For UCBs: investments made after August 30, 2007, in permitted non SLR bonds held under ‘Held to Maturity’ (HTM) category	XI
ANBC (Other than UCBs)                                           III+IV-(V+VI+VII)+VIII-IX+X
ANBC for UCBs                      III + IV – VI – IX + XI
*For the purpose of priority sector computation only. Banks should not deduct / net any amount like provisions, accrued interest, etc. from NBC.

1. Sub-target under Agriculture

The lending to agriculture sector will include Farm Credit (Agriculture and Allied Activities), lending for Agriculture Infrastructure, and Ancillary Activities.

Domestic commercial banks, RRBs, Foreign Banks with 20 & above branches & Small Finance Banks: 18 percent of ANBC or CEOBE, whichever is higher; out of which a target of 10 percent is prescribed for Small and Marginal Farmers (SMFs), to be achieved by March 2024.

Computation of 10% loan to small and marginal farmers include the following:

• Marginal Farmer: Farmer Landholding up to 1 hectare;
• Small Farmer: Farmer Landholding up to 2 hectares;
• Landless agricultural labourers, tenant farmers, oral lessees, and share-croppers;
• Loan to SHG or JLG engaged in agriculture and allied activities.
• Loans up to ₹2 lakh to individuals solely engaged in Allied activities without any accompanying land holding criteria.
• Loan to farmer producer companies of individual farmers and co-operative society having 75% Small and Marginal farmer engaged in agriculture activities.

The present distinction between direct and indirect agriculture is dispensed with. Instead, the lending to the agriculture sector has been re-defined to include:

1. Farm Credit (which will include short-term crop loans and medium/long-term credit to farmers);
2. Farm Credit Loan to the corporate farmer, farmer producer organization, Partnership firms, Cooperative societies;
3. Agriculture Infrastructure; and
4. Ancillary Activities.

i. Farm Credit Loans to individual farmers, SHG, JLG, and Proprietorship firms of farmers directly engaged in Agriculture and Allied Activities. This will include:

• Short term loan for raising crops, i.e. Crop Loans;
• Medium & long-term loan to farmers for agriculture & allied activities;
• Loan to farmers for pre & post-harvest activities;
• Loans up to ₹ 75 lakh against pledge/hypothecation of agricultural produce (including warehouse receipts) for a period not exceeding 12 months against NWRs/eNWRs and up to ₹ 50 lakh against warehouse receipts other than NWRs/eNWRs.
• Loans to farmers under KCC Scheme;
• Loans to distress farmers indebted to non-institutional lenders;
• Loans to farmers for installation of stand-alone Solar Agriculture Pumps, solar power plants, and for solarisation of grid-connected Agriculture Pumps;
• Loan to small & marginal farmers to purchase land for agriculture purposes.

ii. Farm Credit Loan to corporate farmer, farmer producer organization, Partnership firms, Cooperative societies engaged in Agriculture and Allied activities for Loans limit up to 2 crores per borrower. This will include:

• Crop Loans to the farmers which will include traditional/ Non-traditional plantations and horticulture, and loans to allied activities;
• Medium- & long-term loan to farmers for agriculture & allied activities;
• Loan to farmers for pre & post-harvest activities;
• Loans up to ₹75 lakh against pledge/hypothecation of agricultural produce (including warehouse receipts) for a period not exceeding 12 months against NWRs/eNWRs and up to ₹50 lakh against warehouse receipts other than NWRs/eNWRs.
• Loans up to ₹ 5 crores per borrowing entity to FPOs/FPCs undertaking farming with assured marketing of their produce at a pre-determined price;
• UCBs are not permitted to lend to co-operatives of farmers.

iii. Agriculture infrastructure: Loan for aggregate sanction limit of Rs. 100 crores per borrower from the banking system.

• Loans for construction of storage facilities (Warehouse, Godowns, market yards) including cold storage units designed to store Agriculture produce, irrespective of their location;
• Soil conservation and watershed development;
• Plant tissue culture and agri-biotechnology, seed production, production of bio-pesticides, bio-fertilizer, and vermicomposting;
• Loans for construction of oil extraction/ processing units for production of biofuels, their storage and distribution infrastructure along with loans to entrepreneurs for setting up Compressed Bio-Gas (CBG) plants.

iv. Agriculture Ancillary activities:

• Loans up to Rs. 5 crores to co-operative societies of farmers for disposing of the produce of farmers (Not applicable to UCBs);
• Loans for setting Agriclinics & Agribusiness Centres;
• Loan sanction to MFIs for on-lending Ag activities;
• Loans for Food & Agro-processing up to an aggregate sanction limit of Rs. 100 crores per borrower from the banking system;
• Loans up to ₹50 crores to Start-ups, as per definition of Ministry of Commerce and Industry, Govt. of India that are engaged in agriculture and allied services;
• Bank loans to Primary Agricultural Cooperative Society (PACS), Farmer’s Service Societies (FSS), and Large-sized Adivasi Multi-Purpose Scheme (LAMPS) for on-lending to Agriculture;
• Outstanding deposits under RIDF and eligible funds with NABRD on account of priority sector shortfall.

2. Micro, Small, and Medium Enterprises (MSMEs)

Bank loans to Micro, Small, and Medium Enterprises, for both manufacturing and service sectors are eligible to be classified under the priority sector as per the following norms. Within the MSME target, Micro Enterprises will be 7.5% of ANBC or Off-Balance Sheet Exposure, whichever is higher.

Revised MSME Classification applicable w.e.f. 1st July 2020
Composite Criteria for Manufacturing Enterprises and Enterprises rendering Services: Investment and Annual Turnover
Classification	Micro	Small	Medium
Investment in Plant and Machinery or Equipment and	Not more than Rs. 1 crore	Not more than Rs. 10 crore	Not more than Rs. 50 crore
Annual Turnover	Not more than Rs. 5 crore	Not more than Rs. 50 crore	Not more than Rs. 250 crore

Khadi and Village Industries Sector (KVI): All loans given to units of the KVI sector will eligible for the classification of 7.5% prescribed to Micro Enterprises.                     

Other finance to MSMEs:

1. person loans involve in assisting the Artisans, village, and Cottage Industry.
2. Loan to cooperative of producers in the Artisans, village, and Cottage Industry (Not applicable for UCBs).
3. Loan sanction to Banks, MFIs for lending to MSE sectors.
4. Credit outstanding under General Credit Cards (including Artisan Credit Card, Laghu Udyami Card, Swarojgar Credit Card, and Weaver’s Card, etc. in existence and catering to the non-farm entrepreneurial credit needs of individuals).
5. Loans up to ₹ 50 crores to Start-ups, as per definition of Ministry of Commerce and Industry, Govt. of India that conform to the definition of MSME;
6. Overdraft to Pradhan Mantri Jan-Dhan Yojana (PMJDY) account holders as per limits and conditions prescribed by Department of Financial Services;
7. Outstanding deposits with SIDBI and MUDRA Ltd. on account of priority sector shortfall.

3. Export Credit (not applicable to RRBs and LABs)

The Export Credit extended as per the details below would be classified as a priority sector.

1. Domestic Commercial Banks/ WoS of Foreign banks/ SFBs/ UCBs: Incremental export credit over the corresponding date of the preceding year, up to 2 percent of ANBC or CEOBE whichever is higher, subject to a sanctioned limit of up to ₹ 40 crores per borrower.
2. Foreign Banks with 20 & above branches: Incremental export credit over the corresponding date of the preceding year, up to 2 percent of ANBC or CEOBE whichever is higher.
3. Foreign Banks with less than 20 branches: Export Credit will be allowed up to 32 % of ANBC or Off-Balance Sheet Exposure, whichever is higher.

Export credit includes pre-shipment and post-shipment export credit (excluding off-balance sheet items) as defined in Master Circular on Rupee / Foreign Currency Export Credit and Customer Service to Exporters issued by our Department of Banking Regulation.

4. Education

Loans to individuals for educational purposes, including vocational courses, not exceeding ₹ 20 lakh will be considered as eligible for priority sector classification. Loans currently classified as priority sector will continue till maturity

5. Housing

The following housing loans are categorized as Priority Sector Advances;

1. Loan for Construction and Purchase: Loans to individuals up to Rs. 35 lakh in metropolitan centers (with a population of ten lakh and above) and loans up to Rs. 25 lakh in other centers for purchase/construction of a dwelling unit per family provided the overall cost of the dwelling unit in the metropolitan center and at other centers should not exceed Rs. 45 lakh and Rs. 30 lakh respectively. Existing individual housing loans of UCBs presently classified under PSL will continue as PSL till maturity or repayment. The housing loans to banks’ employees will be excluded.
2. Loan for Repairs: Loans for repairs to damaged dwelling units of families up to Rs. 10 lakh in metropolitan centers and up to Rs. 6 lakh in other centers.
3. Loan to governmental agency: Bank loans to any governmental agency for construction of dwelling units or slum clearance and rehabilitation of slum dwellers subject to dwelling units with a carpet area of not more than 60 sq.m.
4. Loan for housing projects: The loans sanctioned by banks for housing projects exclusively for the construction of houses for economically weaker sections and low-income groups, the total cost of which does not exceed Rs. 10 lakh per dwelling unit. To identify the economically weaker sections and low-income groups, the family income limit of Rs. 3 lakh for EWS and Rs. 6 lakh for LIG per annum, in alignment with the income criteria specified under the Pradhan Mantri Awas Yojana.
5. Loan to HFC: Bank loans to Housing Finance Companies (HFCs), approved by NHB for their refinance, for on-lending for purchase/construction/ reconstruction of individual dwelling units or slum clearance and rehabilitation of slum dwellers, subject to an aggregate loan limit of Rs. 20 lakh per borrower.
6. Bank loans for affordable housing projects using at least 50% of FAR/FSI for dwelling units with a carpet area of not more than 60 sq.m.
7. Outstanding deposits with NHB on account of priority sector shortfall.

6. Social infrastructure

Bank loans up to a limit of ₹ 5 crores per borrower for setting up schools, drinking water facilities, and sanitation facilities including construction/ refurbishment of household toilets and water improvements at the household level, etc. and loans up to a limit of ₹ 10 crores per borrower for building health care facilities including under ‘Ayushman Bharat’ in Tier II to Tier VI centers.

In the case of UCBs, the above limits are applicable only in centers having a population of less than one lakh.

Bank loans to MFIs extended for on-lending to individuals and also to members of SHGs/JLGs for water and sanitation facilities.

7. Renewable Energy

Bank loans up to a limit of ₹ 30 crores to borrowers for purposes like solar-based power generators, biomass-based power generators, windmills, micro-hydel plants, and for non-conventional energy-based public utilities, viz., street lighting systems and remote village electrification, etc., will be eligible for Priority Sector classification.

For individual households, the loan limit will be ₹ 10 lakh per borrower.

8. Others

The following loans are also categorised as Priority Sector Advances

1. Loans not exceeding ₹1.00 lakh per borrower provided directly by banks to individuals and individual members of SHG/JLG, provided the individual borrower’s household annual income in rural areas does not exceed ₹1.00 lakh and for non-rural areas, it does not exceed ₹1.60 lakh, and loans not exceeding ₹2.00 lakh provided directly by banks to SHG/JLG for activities other than agriculture or MSME, viz., loans for meeting social needs, construction or repair of house, construction of toilets or any viable common activity started by the SHGs.
2. Loans to distressed persons [other than distressed farmers indebted to noninstitutional lenders] not exceeding ₹1.00 lakh per borrower to prepay their debt to non-institutional lenders.
3. Loans sanctioned to State Sponsored Organisations for Scheduled Castes/ Scheduled Tribes for the specific purpose of purchase and supply of inputs and/or the marketing of the outputs of the beneficiaries of these organisations.
4. Loans up to ₹ 50 crores to Start-ups, as per definition of Ministry of Commerce and Industry, Govt. of India that are engaged in activities other than Agriculture or MSME.

9. Weaker Sections

Priority sector loans to the following borrowers will be considered under the Weaker Sections category. The existing 10% to 12% target of ANBC or Credit Equivalent Amount of Off-Balance Sheet Exposure, whichever is higher has to achieve by 31 March 2024. (Not applicable to Foreign banks with less than 20 branches). Weaker Sections target for RRBs will continue to be 15% of ANBC or CEOBE, whichever is higher.

1. Loan to Small and Marginal farmers;
2. Beneficiaries under Government Sponsored Schemes such as National Rural Livelihood Mission (NRLM), National Urban Livelihood Mission (NULM), Differential Rate of Interest (DRI) scheme, and Self Employment Scheme for Rehabilitation of Manual Scavengers (SRMS)
3. Artisans, Village and cottage industries where individual credit limits do not exceed Rs. 1 lakh;
4. Loan to individual SC & ST category;
5. Loan to persons with disabilities;
6. Loans to individual women beneficiaries up to Rs 1 lakh per borrower. (For UCBs, existing loans to women will continue to be classified under weaker sections till their maturity/repayment.);
7. Loans to distressed farmers indebted to non-institutional lenders;
8. Loans to distressed persons other than farmers not exceeding Rs. 1 lakh per borrower to prepay their debt to non-institutional lenders;
9. Overdraft limit to PMJDY account holder as per limits and conditions prescribed may be notified by Government of India from time to time;
10. Minority communities may be notified by the Government of India from time to time.

Monitoring of Priority Sector Lending targets

To ensure a continuous flow of credit to the priority sector, there will be more frequent monitoring of priority sector lending compliance of banks on a ‘quarterly’ basis instead of an annual basis as of now. The data on priority sector advances have to be furnished by banks at quarterly and annual intervals as per revised reporting formats, the guidelines for which will be issued separately.

Adjustments for weights in PSL Achievement

To address regional disparities in the flow of priority sector credit at the district level, it has been decided to rank districts based on per capita credit flow to the priority sector and build an incentive framework for districts with the comparatively lower flow of credit and a dis-incentive framework for districts with comparatively higher flow of priority sector credit. Accordingly, from FY 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 ₹ 6000), and lower weight (90%) would be assigned for incremental priority sector credit in the identified districts where the credit flow is comparatively higher (per capita PSL greater than ₹ 25,000).

The banks should continue to report the actual outstanding amount in QPSA returns as hitherto. Adjustments for weights to incremental PSL credit will be done by RBI, based on reporting of district-wise credit flow to FIDD, CO through the ADEPT database. RRBs, UCBs, LABs, and foreign banks (including WoS) would be exempted from adjustments of weights in PSL achievement due to their currently limited area of operation/catering to a niche segment.

Investments by banks in securitised assets

(i) Investments by banks in securitised assets, representing loans to various categories of priority sector, except ‘others’ category, are eligible for classification under respective categories of priority sector depending on the underlying assets provided:

1. the securitised assets are originated by banks and financial institutions and are eligible to be classified as priority sector advances before securitisation and fulfill the Reserve Bank of India guidelines on securitisation.
2. the all-inclusive interest charged to the ultimate borrower by the originating entity should not exceed the Base Rate of the investing bank plus 8 percent per annum.

The investments in securitised assets originated by MFIs, which comply with the guidelines in Master Directions are exempted from this interest cap as there are separate caps on margin and interest rate.

(ii) Investments made by banks in securitised assets originated by NBFCs, where the underlying assets are loans against gold jewelry, are not eligible for priority sector status.

Transfer of Assets through Direct Assignment /Outright purchases

(i) Assignments/Outright purchases of a pool of assets by banks representing loans under various categories of priority sector, except the ‘others’ category, will be eligible for classification under respective categories of priority sector provided:

1. the assets are originated by banks and financial institutions which are eligible to be classified as priority sector advances before the purchase and fulfill the Reserve Bank of India guidelines on outright purchase/assignment.
2. the eligible loan assets so purchased should not be disposed of other than by way of repayment.
3. the all-inclusive interest charged to the ultimate borrower by the originating entity should not exceed the Base Rate of the purchasing bank plus 8 percent per annum.

The Assignments/Outright purchases of eligible priority sector loans from MFIs, which comply with the guidelines in Master Directions are exempted from this interest rate cap as there are separate caps on margin and interest rate.

(ii) When the banks undertake the outright purchase of loan assets from banks/ financial institutions to be classified under priority sector, they must report the nominal amount disbursed to end priority sector borrowers and not the premium embedded amount paid to the sellers.

(iii) Purchase/ assignment/investment transactions undertaken by banks with NBFCs, where the underlying assets are loans against gold jewelry, are not eligible for priority sector status.

Inter Bank Participation Certificates

Inter Bank Participation Certificates (IBPCs) bought by banks, on a risk-sharing basis, are eligible for classification under respective categories of priority sector, provided the underlying assets are eligible to be categorized under the respective categories of priority sector and the banks fulfill the Reserve Bank of India guidelines on IBPCs.

About the underlying assets of the IBPC transactions being eligible for categorization under `Export Credit’ as per mention above, the IBPC bought by banks, on a risk-sharing basis, maybe classified from purchasing bank’s perspective for priority sector categorization. However, in such a scenario, the issuing bank shall certify that the underlying asset is ‘Export Credit’, in addition to the due diligence required to be undertaken by the issuing and the purchasing bank as per the guidelines in this regard.

Priority Sector Lending Certificates (PSLCs)

Priority Sector Lending Certificates (PSLCs) are a mechanism to enable banks to achieve the priority sector lending target and sub-targets by the purchase of these instruments in the event of a shortfall. This also incentivizes surplus banks as it allows them to sell their excess achievement over targets thereby enhancing lending to the categories under the priority sector. Under the PSLC mechanism, the seller sells fulfillment of priority sector obligation and the buyer buys the obligation with no transfer of risk or loan assets.

Co-lending by Banks and NBFCs to priority sector (not applicable to RRBs, UCBs, SFBs and LABs)

All Scheduled Commercial Banks (excluding SFBs, RRBs, UCBs and LABs) are permitted to co-lend with all registered Non-Banking Financial Companies (including Housing Finance Companies) for lending to the priority sector. 

Non-achievement of Priority Sector targets

(i) Banks having any shortfall in lending to priority sector shall be allocated amounts for contribution to the Rural Infrastructure Development Fund (RIDF) established with NABARD and other funds with NABARD/NHB/SIDBI/ MUDRA Ltd., as decided by the Reserve Bank from time to time.

(ii) With effect from March 31, 2021, all UCBs (excluding those under all-inclusive directions) will be required to contribute to the Rural Infrastructure Development Fund (RIDF) established with NABARD and other funds with NABARD / NHB / SIDBI / MUDRA Ltd., against their priority sector lending (PSL) shortfall vis-àvis the prescribed target.

(iii) While computing priority sector target achievement, shortfall / excess lending for each quarter will be monitored separately. A simple average of all quarters will be arrived at and considered for computation of overall shortfall/excess at the end of the year. The same method will be followed for calculating the achievement of priority sector sub-targets.

(iv) The interest rates on banks’ contribution to RIDF or any other funds, tenure of deposits, etc. shall be fixed by the Reserve Bank of India from time to time.

(v) The misclassifications reported by the Reserve Bank’s Department of Supervision (DoS) (NABARD in respect of RRBs) would be adjusted/ reduced from the achievement of that year, to which the amount of misclassification pertains, for allocation to various funds in subsequent years.

(vi) Non-achievement of priority sector targets and sub-targets will be taken into account while granting regulatory clearances/approvals for various purposes.

For more details, visit on RBI Website: https://www.rbi.org.in/scripts/NotificationUser.aspx?Mode=0&Id=11959