Priority Sector Lending

Understanding Priority Sector Lending

Priority sector lending is a requirement by the Reserve Bank of India (RBI) for banks to allocate a portion of their lending to crucial economic sectors. These sectors may lack access to traditional credit.  

Key Terms in Priority Sector Lending

1. Priority sector: 

The RBI identifies sectors like agriculture, micro, small and medium enterprises (MSMEs), education, housing, and other important societal segments for priority sector lending. 

2. Priority sector lending targets: 

The RBI sets the proportion of total bank loans that must go to priority sectors. Currently, the target for total priority sector lending is 40% of Adjusted Net Bank Credit (ANBC) or Credit Equivalent Amount, whichever is higher.

Priority Sector Lending Categories

Majorly, priority sector lending can be divided into: 

• 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

Further Details on Categories

Agriculture

This involves direct or indirect financing to individual farmers for farming, cultivation of crops, and livestock rearing. 

Weaker sections

This category targets socio-economically disadvantaged groups such as low-income groups, minorities, and women. 

MSMEs

This involves lending to small or medium enterprises engaged in manufacturing, processing, or preservation of goods or services. 

Education

Loans to individuals for educational purposes, including vocational courses, up to Rs 20 lakh are covered under this. 

Non-performing assets

This involves loans that have stopped generating income for the lender or have been in default for a specific period. 

Other activities

Other activities such as education loans, microcredit, housing loans, Renewable Energy, Social infrastructure also involve priority sector lending.