On September 2020, the RBI revised the priority sector lending (PSL) guidelines in order keep it in line with new emerging national priorities including entrepreneurship and renewable resources. Revised PSL guidelines will enable:
·better credit penetration to credit deficient areas
·increase the lending to small and marginal farmers and weaker sections
·boost credit to renewable energy and health infrastructure
The PSL guidelines were last reviewed for commercial banks in April 2015 and for Urban Co-operative Banks (UCBs) in May 2018.
What is PSL?
Priority Sector Lending refers to lending to those sectors of the economy which may not get timely and adequate credit in the absence of this special dispensation. It is an important role given by the RBI to the banks for providing a specified portion of the bank lending to few specific sectors like agriculture and allied activities, micro and small enterprises, poor people for housing, students for education, and other low income groups and weaker sections. This is essentially meant for development of the economy as opposed to focusing only on the financial sector.
Revised guidelines include:
·New Categories - up to Rs 50 crore loans to farmers for installation of solar power plants for solarisation of grid-connected agriculture pumps; and loans for setting up Compressed Biogas plants.
·Higher credit limit has been specified for Farmers Producers Organisations (FPOs) undertaking farming with assured marketing of their produce at a predetermined price. Loans for these activities will be subject to an aggregate limit of Rs. 2 crore per borrowing entity. The targets prescribed for small and marginal farmers and weaker sections will be increased in a phased manner.
·The credit limits for renewable energy, health infrastructure, including the projects under Ayushman Bharat, have been doubled. Bank loans up to a limit of Rs. 30 crore to borrowers for purposes like solar-based and biomass-based power generators, windmills, non-conventional energy-based public utilities, etc. For individual households, the loan limit will be Rs. 10 lakh per borrower.
·It seeks to address regional disparities in the flow of priority sector credit at district level which includes - ranking districts on the basis of per capita credit flow to the priority sector and building an incentive framework for districts.