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Economists at the country's largest lender, SBI, have recommended a comprehensive review of India's Priority Sector Lending (PSL) framework, arguing that infrastructure loans should be brought under the mandatory lending requirements or excluded from PSL calculations. The recommendations, outlined in a paper released in the past week, cite a sharp rise in trading of Priority Sector Lending Certificates (PSLCs), which reached INR 12.2 lakh crore in FY25 from INR 1.8 lakh crore in FY18, indicating structural challenges in meeting PSL obligations. The paper also proposes higher PSL limits for housing, education and renewable energy loans to reflect rising costs and investment requirements. The suggestions are aimed at improving credit allocation while supporting the country's long-term infrastructure and development priorities.
Economists at the country's largest lender, SBI, have recommended a comprehensive review of the Priority Sector Lending (PSL) guidelines, proposing that infrastructure loans should either be classified as priority sector advances or excluded from the calculation of Adjusted Net Bank Credit (ANBC) for determining PSL compliance. The recommendations were outlined in a paper released in the past week, which also suggested revisions to lending limits for housing, education and renewable energy sectors to better reflect current financing requirements.
The paper highlighted the growing reliance on Priority Sector Lending Certificates (PSLCs) by banks to meet regulatory obligations. According to the economists, trading in PSLCs increased significantly to INR 12.2 lakh crore in FY25 from INR 1.8 lakh crore in FY18. The report stated that, after excluding PSLC purchases and funds placed in the Rural Infrastructure Development Fund (RIDF), no bank was able to achieve the mandatory target of directing 40 per cent of its Adjusted Net Bank Credit towards priority sectors.
It further noted that a cost-benefit assessment of the Rural Infrastructure Development Fund suggested banks found it more attractive to purchase PSLCs than to deploy funds through the RIDF mechanism. The economists indicated that this trend reflected the need to revisit the existing framework governing priority sector compliance.
A key recommendation in the paper focused on expanding support for infrastructure financing through the banking system. The economists argued that substantial investment would be required to achieve the Prime Minister's Vision 2047 objectives and observed that long-term funding sources remained limited due to the absence of a sufficiently developed corporate bond market. They therefore proposed that all infrastructure loans should either receive priority sector status or be excluded from ANBC calculations when assessing banks' PSL targets.
The paper also recommended revisions to PSL eligibility limits across several sectors. In the housing segment, it observed that average loan sizes were expected to increase and proposed raising the PSL ceiling for housing loans to INR 1 crore in metropolitan cities and INR 75 lakh in other locations.
For education loans, the economists suggested doubling the PSL eligibility threshold to INR 50 lakh, noting that the cost of higher education had risen considerably in recent years.
The recommendations also covered renewable energy financing. The paper proposed increasing the PSL eligibility limit for renewable energy projects to INR 100 crore from the existing INR 35 crore. For individual borrowers installing rooftop solar systems, it recommended raising the qualifying loan limit to INR 2 crore from the current INR 10 lakh.
The proposals form part of a broader set of recommendations intended to align the priority sector lending framework with evolving financing needs across infrastructure and other key sectors of the economy.
Source - PTI
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