TITLE: India's Reserve Bank Updates Priority Sector Lending Targets and Classification Directions
BODY:
On March 25, 2025, the Reserve Bank of India (RBI) updated its Master Directions on Priority Sector Lending (PSL) – Targets and Classification, superseding previous guidance dated September 4, 2020. The updated directions apply to all commercial banks, including regional rural banks, small finance banks, local area banks, and primary urban co-operative banks, excluding salary earners' banks.
The revised framework maintains overall priority sector lending targets of 40 percent of adjusted net bank credit (ANBC) for domestic commercial banks and foreign banks with 20 or more branches. Regional rural banks and small finance banks must achieve 75 percent of ANBC, with restrictions on medium enterprises, social infrastructure, and renewable energy lending capped at 15 percent of ANBC. Primary urban co-operative banks face a phased increase to 60 percent of ANBC from financial year 2024-25 onwards.
Key updates include a new weighting adjustment mechanism effective from financial year 2024-25, assigning 125 percent weight to incremental priority sector credit in districts with comparatively lower credit flow (per capita PSL below ₹9,000) and 90 percent weight in districts with higher flow (per capita PSL exceeding ₹42,000). The lists of identified districts are provided in annexes and remain valid through financial year 2026-27.
The directions consolidate updates across multiple categories including agriculture, micro, small and medium enterprises, export credit, education, housing, social infrastructure, renewable energy, and lending to weaker sections. Banks must monitor compliance quarterly and report data to the RBI's Financial Inclusion and Development Department within specified timeframes. Non-achievement of targets results in mandatory contributions to the Rural Infrastructure Development Fund and other designated funds with NABARD, NHB, SIDBI, and MUDRA Ltd.