Priority Sector Lending

• What is Priority Sector Lending?
• Understand the Priority Sector Lending in-details
• Categories of the Priority Sector Lending

What is Priority Sector Lending?

Priority sector lending refers to the mandatory lending requirement imposed on banks by the Reserve Bank of India (RBI) to ensure that a certain portion of their lending is directed toward the priority sectors of the economy. The priority sectors are identified as those sectors which are crucial for the growth and development of the economy but may not have access to credit from traditional sources. 

 Understand the Priority Sector Lending in-detail

Here is a glossary of key terms related to priority sector lending: 

1. Priority sector: 

The sectors identified by the RBI for priority sector lending includes agriculture, micro, small and medium enterprises (MSMEs), education, housing, and other specified weaker sections and segments of society which are crucial for the growth and development of the economy.

2. Priority sector lending targets: 

The percentage of total bank loans that must be directed towards priority sectors, as set by the RBI. Currently, the target for total priority sector lending  is set at 40% of Adjusted Net Bank Credit (ANBC) or Credit Equivalent Amount whichever is higher.

Categories of Priority Sector Lending

In broadly, priority sector lending can be categorized into the following sectors:

• Priority Sector Lending for Agriculture

• Priority Sector Lending for Weaker sections

• Priority Sector Lending for MSMEs

• Priority Sector Lending for Education

• Priority Sector Lending for Non-performing assets

Priority Sector Lending for Agriculture

The primary sector of the economy, which includes farming, cultivation of crops, livestock rearing, fisheries, and forestry, requires direct or indirect finance to the individual farmers by the scheduled commercial banks. Priority sector lending includes short-term, medium/long-term direct or indirect loans and credits to the farmers, such as Farm Credit, Ancillary Activities, and even Agriculture Infrastructure.

Priority Sector Lending for Weaker sections

Here, Priority sector lending is given to those sections of society that are socio-economically disadvantaged, such as low-income groups, minorities, and women.

Priority Sector Lending for MSMEs

Micro enterprises are the ones where the investment in plant and machinery or equipment does not exceed one crore rupees and turnover does not exceed five crore rupees.

Small enterprises are the ones where the investment in plant and machinery or equipment does not exceed ten crore rupees and turnover does not exceed fifty crore rupees.

Medium enterprise, where the investment in plant and machinery or equipment does not exceed fifty crore rupees and turnover does not exceed two hundred and fifty crore rupees

In this category, the Priority sector lending involves small or medium Enterprises that manufacture, process, or preserve goods or services with investment in plant and machinery up to INR 50 million and INR 250 million, respectively.

Priority Sector Lending for Education

In this category, Priority sector lending involves loans to individuals for educational purposes, including vocational courses, not exceeding Rs 20 lakh..

Priority Sector Lending for Non-performing assets

Generally, in this sort of Priority sector lending, loans that have stopped generating income for the lender or have been in default for a specified period.

Other activities covered under priority sector lending

Other than the above, some other main categories also involve priority sector lending, such as education loans, microcredit, housing loans, Renewable Energy, Social infrastructure, etc.