Page 1 of 6
European Journal of Business &
Social Sciences
Available at https://ejbss.org/
ISSN: 2235-767X
Volume 07 Issue 04
April 2019
Available online: https://ejbss.org/ P a g e | 1171
Utilisation of Priority Sector Lending (PSL) – An Analysis of
Commercial Banks
Meenu Bhandari
Assistant Professor, Department of Management Studies,
Ganga Technical Campus, Bahadurgarh
ABSTRACT
RBI has assigned a significant role to the commercial banks of providing Priority sector lending (PSL) to
the few specified sectors. In a developing country like India, Mandatory sanctioning of Credit or Priority
sector lending (PSL) is a part of regulatory framework for the Commercial Banks. These sectors are the
deprived sections of the economy, popularly known as Priority sector. Banks play an important role in
creation of credit. So, at the time of allocation of credit, they need to lend a specified portion of the credit
to the Priority sector. The present study focuses on the structure of Public sector banks, Private sector
banks and foreign banks in India and to what extent these banks have successful in implementing the
policies of RBI regarding the Priority sector lending (PSL).
Keywords: Agriculture, Lending Preference, Priority sectors, Trends, Weaker sections.
Introduction
RBI has assigned a significant role to the commercial banks of providing Priority sector lending to the
few specified sectors like 1. Agriculture and allied activities 2.Micro-small and medium enterprises
3.Housing facilities 4. Education services 5. Export Credit 6. Weaker section 7. Renewable energy
8.Social infrastructure and others. These sectors are mainly those sectors of the economy which may not
get timely and adequate credit. Thus instead of focusing only on the financial sector, commercial banks
has been assigned the duty of the overall development of the economy.
The term “Priority Lending” was first introduced in 1967 by the then Prime Minister Morarji Desai. It
progressed in 1970s after the nationalization of 14 major commercial banks in 1969 and again it
witnessed a significant change in 1980 with the nationalization of 6 more commercial banks. Banks have
the responsibility of credit creation and credit is the life blood of any business. Over the years, the scope
and extent of priority sector lending (PSL) has witnessed vibrant changes with several new areas and
sectors being brought under its umbrella.
The present study focuses on the structure of Public sector banks, Private sector banks and Foreign banks
in India and to what extent these banks have successful in implementing the policies of RBI regarding the
Page 2 of 6
European Journal of Business &
Social Sciences
Available at https://ejbss.org/
ISSN: 2235-767X
Volume 07 Issue 04
April 2019
Available online: https://ejbss.org/ P a g e | 1172
Priority sector lending (PSL). This paper required a detailed and thorough study of RBI policy to
understand how it has moved Commercial Banks towards PSL in India.
Objectives of the study
1. To find out the relevance of the existing framework of PSL in Indian economy and to what extent
the Commercial Banks have become successful in achieving their target.
2. To evaluate the effects of increasing the scope of PSL for the Commercial Banks.
3. To analyse the difference between Priority Sector Lending (PSL) among Public Sector Banks and
Private Sector Banks.
4. To analyse the proportion of NPAs (Non-performing assets) of Priority sector lending to the Non- priority sector lending by Commercial Banks.
Methodology of the study
The present study is based on the secondary data mainly. The secondary data sources include
various national reports (RBI reports, various committees’ reports, various bulletins etc.) as well
as International reports (World Bank report, IMF report, ADB report etc.). Various Research
Papers and articles related to PSL published in different magazines, Newspapers, Journals etc. has
been analyzed. Various statistical tools like Ratio analysis, Percentages, averages, trend analysis
etc. have been used to analyze and interpreting the results.
Categories covered by Commercial Banks under PSL
1. Agriculture
2. MSME
3. Housing
4. Social Infrastructure
5. Education
6. Renewable Energy
7. Export credit
8. Others
Present Structure of Targets and Sub-targets for Commercial Banks under PSL
As per RBI Policy Framework (As on Dec. 2018)
Categories Scheduled Commercial Banks and Foreign
Banks with more than 20 branches in India
(Excluding RRBs and Small Finance Banks)
Foreign Banks with less than
20 branches in India
Total Priority
Sector
40% of ANBC Or Credit Equivalent amount of Off
Balance Sheet exposure, whichever is higher.
40% of ANBC Or Credit
Equivalent amount of Off
Page 3 of 6
European Journal of Business &
Social Sciences
Available at https://ejbss.org/
ISSN: 2235-767X
Volume 07 Issue 04
April 2019
Available online: https://ejbss.org/ P a g e | 1173
Balance Sheet exposure,
whichever is higher. (In a phased
manner by 2020)
Agriculture 18% of ANBC Or Credit Equivalent amount of Off- Balance Sheet exposure, whichever is higher.
(For small and Marginal Farmers- 8% of
Adjusted ANBC or Credit Equivalent amount of
Off-Balance Sheet Exposure, whichever is higher)
Not applicable
Micro
Enterprises
7.5% of ANBC Or Credit Equivalent amount of Off
Balance Sheet exposure, whichever is higher.
Not applicable
Weaker
Sections
10% of ANBC Or Credit Equivalent amount of Off
Balance Sheet exposure, whichever is higher.
Not applicable
ANBC= Adjusted Net Bank Credit
Agriculture Includes:
A. Farm Credit B. Agriculture Infrastructure C. Ancillary activities
Weaker Section Includes:
A. Small and marginal farmers
B. Artisans, Village and Cottage Industries
C. Scheduled Castes and Scheduled Tribes
D. Self-help group (SHG)
E. Persons with disability
F. Distressed persons other than farmers
G. Individual Women beneficiaries up to Rs. One Lakh per borrower
H. Beneficiaries of Differential rate of interest scheme (DRI)
I. Overdraft limit to PMJDY account holder up to Rs.10,000 (age limit 18-65 years)
J. Minority communities as notified by GOI from time to time
Loan Limits for Various Catergories:
1. Loan Limit for “EDUCATION” under Priority sector: Loans to individuals for educational
purposes (vocational courses also included) is up to Rs. 10 Lakhs under priority sector.
