Why in the news
With the RBI’s new PSL rules due from 1 April 2025, lenders that generate little priority lending on their own, such as HDFC Bank, RBL Bank, Federal Bank and IndusInd Bank, are expected to gain.
Key facts
- Aim: more credit to housing, clean energy and weaker sections.
- New eligibility: transgender persons and JLGs named explicitly; education loan ceiling ₹25 lakh; artisans and women limit ₹2 lakh.
- Energy: ceiling for renewable projects up from ₹30 crore to ₹35 crore.
- Urban co-operative banks: 60% overall target, with 7.5% micro enterprises and 12% weaker sections.
Weaker sections now cover
- SCs, STs and notified minorities
- Persons with disabilities
- Small, marginal and distressed farmers
- Individual SHG or JLG members and artisans
- Individual women, without a loan-size cap
Regional weights
| District type | Weightage |
|---|
| Lower per-capita credit | 125% |
| Higher per-capita credit | 90% |
How banks comply
- Direct lending to eligible borrowers.
- Investment in bonds of priority-sector institutions.
- Tradable PSLCs bought from surplus banks, which give market-based incentive.
- Missed targets mean deposits in RIDF (NABARD) or SIDBI, NHB and MUDRA funds.
Benefits and challenges
| Benefits | Challenges |
|---|
| Inclusive growth, rural development, MSME credit | Fake beneficiaries due to weak monitoring |
| Poverty reduction, financial stability through diversified loan books | Higher default risk, especially agri and micro loans |
| Wider access to housing, education, green finance | Lower margins and compliance burden on small banks |
Exam angle
- Effective date: 1 April 2025.
- RIDF launched 1995-96 and run by NABARD.
- Terms: PSLC, weaker sections, JLG.