Chapter

Master Directions - Reserve Bank of India (Priority Sector Lending –

Targets and Classification) Directions

Applicability

1. All Commercial Banks including Regional Rural Banks,

2. Small Finance Banks, Local Area Banks and
3. Primary (Urban) Co-operative Banks other than Salary Earners’ Banks

Purpose - a framework for ensuring adequate flow of credit from the banking system to the sectors of the economy
which are crucial for their contribution to socio-economic development, with focus on specific segments whose credit
needs remain underserved despite being credit worthy.

Categories under Priority Sector

1. Agriculture
2. Micro, Small and Medium Enterprises
3. Export Credit
4. Education
5. Housing
6. Social Infrastructure
7. Renewable Energy
8. Others

Targets/Sub-targets for Priority sector

Targets/ Sub-targets
Domestic Commercial
Banks (excl. RRBs &
Categories Foreign Banks with
SFBs) & Foreign Banks Regional Rural Banks Small Finance Banks
less than 20 branches
with 20 branches and
above
Total Priority 40% of ANBC or 40% of ANBC or 75% of ANBC or 75% of ANBC or
Sector CEOBSE, whichever is CEOBSE, whichever CEOBSE, whichever CEOBSE,
higher. is higher; is higher. whichever is
• out of which up • However, higher.
to 32% can be in lending to

Prepared by: Raman Luthra

Chartered Accountant
 the form of Medium
Export Credit Enterprises,
and not less Social
than 8% can be Infrastructure
to any other and Renewable
priority sector. Energy shall be
reckoned for
priority sector
achievement up
to 15% of ANBC
only.
Agriculture 18% of ANBC or Not applicable 18% ANBC or 18% of ANBC or
CEOBSE, whichever is CEOBSE, whichever CEOBSE,
higher. is higher. whichever is
• Within this target, • Within this higher.
14% percent is target, 14% is • Within this
prescribed for Non- prescribed for target, 14% is
Corporate Farmers NCFs, out of prescribed for
(NCFs), out of which which a target NCFs, out of
a target of 10% is of 10% is which a target
prescribed for prescribed for of 10% is
SMFs. (Small and SMFs. prescribed for
marginal farmers) SMFs.
Micro Enterprises 7.5% of ANBC or Not applicable 7.5% of ANBC or 7.5% of ANBC or
CEOBSE, whichever is CEOBSE, whichever CEOBSE,
higher is higher whichever is
higher
Advances to 12% of ANBC or Not applicable 15% of ANBC or 12% of ANBC or
Weaker Sections CEOBSE, whichever is CEOBSE, whichever CEOBSE,
higher is higher whichever is
higher

The priority sector lending targets for UCBs shall be as follows:

Targets as a percentage of ANBC

Categories
or CEOBSE, whichever is higher
Total Priority Sector 60%
Micro Enterprises 7.5%
Advances to Weaker Sections 12%

Prepared by: Raman Luthra

Chartered Accountant
Notes –

1. Computation of Adjusted Net Bank Credit (ANBC)

Bank Credit in India I

Bills rediscounted with RBI and other approved Financial Institutions II
Net Bank Credit (NBC)* III (I-II)
Outstanding Deposits under RIDF and other eligible funds with NABARD, NHB, SIDBI and IV
MUDRA Ltd in lieu of non-achievement of priority sector lending targets/sub-targets +
outstanding PSLCs
Eligible amount for exemptions on issuance of long-term bonds for infrastructure and V
affordable housing.
Advances extended in India against the incremental FCNR (B)/NRE deposits, qualifying VI
for exemption from CRR/SLR requirements.
Investments made by public sector banks in the Recapitalization Bonds floated by VII
Government of India
Other investments eligible to be treated as priority sector (e.g. investments in VIII
securitisation notes)
Bonds/debentures in Non-SLR categories under HTM category IX
ANBC = III + IV - (V + VI + VII) + VIII + IX
• For the purpose of priority sector computation only. Banks shall not deduct / net any amount
like provisions, accrued interest, etc. from NBC.

2. CEOBE refers to the credit equivalent amount of off-balance sheet exposures, which are financial transactions
that are not reflected on a bank's balance sheet but still carry credit risk.

3. Non-Corporate Farmers (NCF) shall include individual farmers including Small and Marginal Farmers (SMFs),
proprietorship firms of farmers directly engaged in agriculture and allied activities, and Self-Help Groups (SHGs)
or Joint Liability Groups (JLGs) i.e., group of individual farmers, provided banks maintain disaggregated data of
such loans.

• Eligibility criteria for categorization as lending to Small and Marginal Farmers (SMFs)
i. Farmers with landholding of up to 1 hectare (Marginal Farmers)
ii. Farmers with a landholding of more than 1 hectare and up to 2 hectares (Small Farmers)
iii. Landless agricultural labourers, tenant farmers, oral lessees and share-croppers whose share of
landholding is within the limits prescribed for SMFs.
iv. Self Help Groups (SHGs) or Joint Liability Groups (JLGs), i.e., groups of individual SMFs directly engaged
in agriculture and allied activities, provided banks maintain disaggregated data of such loans
v. Loans up to ₹2.5 lakh to individuals solely engaged in allied activities without any accompanying land
holding criteria.
vi. Loans to FPOs/FPCs of individual farmers and co-operatives of farmers directly engaged in agriculture
and allied activities where the land-holding share of SMFs is not less than 75%, subject to loans up to
₹10 crore per borrowing entity.

Prepared by: Raman Luthra

Chartered Accountant
 Note - Allied activities i.e. activities allied to agriculture shall include dairy, fisheries, animal husbandry, poultry,
bee-keeping, sericulture and similar activities.

Weaker Sections
Priority sector loans to the following borrowers will be considered as lending to Weaker Sections (overlapping
category)

i. Small and Marginal Farmers

ii. Artisans, village and cottage industries where individual credit limits do not exceed ₹2 lakh
iii. Beneficiaries under Government Sponsored Schemes such as National Rural Livelihood Mission (NRLM),
National Urban Livelihood Mission (NULM) and Self Employment Scheme for Rehabilitation of Manual
Scavengers (SRMS)
iv. Scheduled Castes and Scheduled Tribes
v. Beneficiaries of Differential Rate of Interest (DRI) scheme
vi. Self Help Groups/Joint Liability Groups
vii. Individuals and individual members of SHGs/JLGs, satisfying criteria as prescribed in Master Direction on
Regulatory Framework for Microfinance Loans Directions, dated March 14, 2022
viii. Individual women beneficiaries up to ₹2 lakh per borrower.
ix. Distressed farmers indebted to non-institutional lenders
x. Distressed persons other than farmers, with loan amount not exceeding ₹1 lakh per borrower to prepay
their debt to non-institutional lenders
xi. Persons with disabilities
xii. Transgenders
xiii. Minority communities as may be notified by Government of India from time to time.

Adjustments for weights in PSL Achievement

To address regional disparities in the flow of priority sector credit at the district level, it was decided to rank districts
on the basis of per capita credit flow to priority sector and build an incentive framework for districts with
comparatively lower flow of credit and a dis-incentive framework for districts with comparatively higher flow of
priority sector credit.

➢ A higher weight (125%) shall be assigned to the incremental priority sector credit in the identified districts
where the credit flow is comparatively lower (per capita PSL less than ₹9,000),
➢ A lower weight (90%) will be assigned for incremental priority sector credit in the identified districts where
the credit flow is comparatively higher (per capita PSL greater than ₹42,000).

Note –
i. The districts other than those covered above will continue to have normal weightage of 100%.
ii. The banks shall report the actual outstanding amount in Quarterly Priority Sector Advances (QPSA) returns to
FIDD (Financial Inclusion & Development Dept), CO, RBI through the ADEPT database.

Prepared by: Raman Luthra

Chartered Accountant
 ELIGIBLE CATEGORIES UNDER PRIORITY SECTOR

1. Agriculture
The lending to agriculture sector will include Farm Credit (Agriculture and Allied Activities), lending for Agriculture
Infrastructure and Ancillary Activities.

Farm Credit
Farm Credit - Loans to individual farmers [including Self Help Groups (SHGs) or Joint Liability Groups
Individual farmers (JLGs)

i. Crop loans including loans for traditional/non-traditional plantations, horticulture

and allied activities
ii. Medium and long-term loans for agriculture and allied activities (e.g. purchase of
agricultural implements and machinery and developmental loans for allied
activities)
iii. Loans for pre and post-harvest activities viz., spraying, harvesting, grading and
transporting of own farm produce
iv. Loans to distressed farmers indebted to non-institutional lenders
v. Loans under the Kisan Credit Card Scheme
vi. Loans to small and marginal farmers (SMFs) for purchase of land for agricultural
purposes
vii. Loans against pledge/hypothecation of agricultural produce (including warehouse
receipts) for a period not exceeding 12 months subject to a limit up to ₹90 lakh
against Negotiable Warehouse Receipt (NWRs)/Electronic Negotiable Warehouse
Receipt (eNWRs) and up to ₹60 lakh against warehouse receipts other than
NWRs/eNWRs
viii. Loans to farmers for installation of stand-alone solar agriculture pumps and for
solarisation of grid connected agriculture pumps.
ix. Loans to farmers for installation of solar power plants on barren/fallow land or in
stilt fashion on agriculture land owned by farmer.

Farm Credit – Farm Credit - Corporate farmers, Farmer Producer Organisations/ Companies
others (FPOs)/(FPCs) of Individual Farmers, Partnership firms and Co-operatives of farmers
engaged in Agriculture and Allied Activities

a) Loans for the following activities, subject to an aggregate limit of ₹4 crore per
borrowing entity, will be eligible:
i. Crop loans to farmers which will include traditional/non-traditional plantations
and horticulture and loans for allied activities
ii. Medium and long-term loans for agriculture and allied activities (e.g., purchase of
agricultural implements, technological solutions, machinery and developmental
loans for allied activities)
iii. Loans for pre and post-harvest activities viz., spraying, harvesting, grading and

Prepared by: Raman Luthra

Chartered Accountant
 transporting of their own farm produce

b) Loans up to ₹4 crore against pledge/hypothecation of agricultural produce (including

warehouse receipts) for a period not exceeding 12 months against NWRs/eNWRs and
up to ₹2.5 crore against warehouse receipts other than NWRs/eNWRs.

c) Loans up to ₹10 crore per borrowing entity to FPOs/FPCs undertaking farming with
assured marketing of their produce at a pre-determined price

d) Loans up to ₹10 crore for purchase of the produce of members directly engaged in
agriculture and allied activities.

Note: UCBs are not permitted to lend to co-operatives of farmers.

Agriculture Infrastructure
Loans for agriculture infrastructure will be subject to an aggregate sanctioned limit of ₹100 crore per borrower
from the banking system.
Ancillary Services
i. Loans up to ₹50 crore to Start-ups that are engaged in agriculture and allied services
ii. Loans for Food and Agro-processing up to an aggregate sanctioned limit of ₹100 crore per borrower
from the banking system.
iii. Export credit to the agriculture sector, including pre-shipment and post-shipment export credit
(excluding off-balance sheet items).
iv. Outstanding deposits under Rural Infrastructure Development Fund (RIDF) and other eligible funds
with NABARD on account of priority sector shortfall.

Lending by banks to NBFCs and MFIs for on-lending in agriculture

i. Bank credit extended to registered NBFC-MFIs and other MFIs (Societies, Trusts etc.) which are
members of RBI recognised SRO for the sector, for on-lending to individuals and also to members of
SHGs/JLGs will be eligible for categorisation as priority sector advance under respective categories of
agriculture.
ii. Bank credit to registered NBFCs (other than MFIs) towards on-lending for ‘term lending’ component
under agriculture will be eligible for PSL classification up to ₹10 lakh per borrower

2. Micro, Small and Medium Enterprises (MSMEs)

MSME Classification
Composite Criteria: Investment in Plant & Machinery/equipment and Annual Turnover
Revised Classification applicable w.e.f 1st April 2025

Prepared by: Raman Luthra

Chartered Accountant
 Classification Micro Small Medium

Investment in Plant and Investment in Plant and Investment in Plant and

Machinery or Machinery or Machinery or
Equipment: Equipment: Equipment:
Manufacturing Not more than Rs. 2.5 Not more than Rs. 25 Not more than Rs. 125
Enterprises and crores crores crores
Enterprises rendering
Services and and and

Annual Turnover not Annual Turnover not Annual Turnover not

more than Rs. 10 crores more than Rs. 100 crores more than Rs. 500 crores

Micro, Small and Medium Enterprises (MSMEs)

i. All bank loans to MSMEs shall qualify for classification under priority sector lending.
ii. Loans up to ₹50 crore to Start-up shall also be eligible to be classified under this category.
Factoring Transactions
i. ‘With recourse’ factoring transactions by banks which carry out the business of factoring
departmentally wherever the ‘assignor’ is a Micro, Small or Medium Enterprise would be eligible for
classification under MSME category.
ii. Factoring transactions pertaining to MSMEs taking place through the Trade Receivables Discounting
System (TReDS) shall also be eligible for classification under priority sector.
Other Loans eligible to be classified under PSL in the MSME category

i. All loans to units in the Khadi and Village Industries sector, which shall be categorised as lending to
micro enterprises.
ii. Loans to entities involved in assisting the decentralized sector in the supply of inputs and marketing of
output of artisans, village and cottage industries.
iii. Loans to co-operatives of producers in the decentralized sector viz., artisans, village and cottage
industries (not applicable to UCBs).
iv. Export credit to the MSME sector, including pre-shipment and post-shipment export credit (excluding
off-balance sheet items)
v. Loans by banks to NBFC-MFIs and other MFIs (Societies, Trusts, etc.) which are members of RBI
recognised SRO for the sector, for on-lending to the MSME sector, borrowers being individuals and
members of SHGs/ JLGs.
vi. Loans to registered NBFCs (other than MFIs) for on-lending to micro and small enterprises up to Rs.20
lakh per borrower.
vii. Overdraft to Pradhan Mantri Jan-Dhan Yojana (PMJDY) account holders as per limits and conditions
prescribed by Department of Financial Services, Ministry of Finance from time to time, which shall be
categorised as lending to Micro Enterprises.
viii. Outstanding deposits with SIDBI and MUDRA Ltd. on account of priority sector shortfall.

Prepared by: Raman Luthra

Chartered Accountant
3. Export Credit

i. Export credit includes pre-shipment and post-shipment export credit (excluding off-balance sheet items)
ii. Export credit to agriculture and MSME shall be eligible for classification as PSL in the respective categories.
iii. Export Credit (other than that classified under agriculture and MSME) shall be eligible for classification as
priority sector lending as per the following table:

Domestic banks/WoS of Foreign banks with 20 Foreign banks with less than
Foreign banks/SFBs/UCBs branches and above 20 branches

Incremental export credit over

corresponding date of the Incremental export credit
preceding year, up to 2% of over corresponding date of Export credit up to 32% of
ANBC or CEOBSE whichever is the preceding year, up to 2% ANBC or CEOBSE whichever is
higher, subject to a sanctioned of ANBC or CEOBSE higher.
limit of up to ₹50 crore per whichever is higher.
borrower.

4. Education
Loans to individuals for educational purposes, including vocational courses, not exceeding ₹25 lakh will be
considered as eligible for priority sector classification.

5. Housing

i. Loans to individuals for PURCHASE/CONSTRUCTION of a dwelling unit PER FAMILY subject to the following
limits:

(Amount in ₹ lakh)
Maximum Cost of
Category Loan Limit#
Dwelling Unit#
Centres with population of 50 lakhs and
50 63
above
Centres with population of 10 lakh and
45 57
above but below 50 lakhs
Centres with population below 10 lakhs 35 44
#to be eligible, the loan to satisfy both the criteria

o Housing loans to banks’ own employees will NOT be eligible for classification under the priority sector.
o Housing loans which are backed by long term bonds shall NOT be classified under priority sector, as
they are exempted from inclusion in ANBC.

ii. Loans for REPAIRS to damaged dwelling units shall be eligible for priority sector classification subject to
the following limits:

Prepared by: Raman Luthra

Chartered Accountant
 (Amount in ₹ lakh)
Maximum Cost of
Category Loan Limit#
Dwelling Unit#
Centres with population of 50 lakh and
15 63
above
Centres with population of 10 lakh and
12 57
above but below 50 lakhs
Centres with population below 10 lakhs 10 44
#to be eligible, the loan to satisfy both the criteria

iii. Bank loans to any governmental agency for construction of dwelling units or for slum clearance and
rehabilitation of slum dwellers subject to dwelling units with carpet area of not more than 60 sq.m.

iv. Bank loans for affordable housing projects using at least 50% of FAR/FSI for dwelling units with carpet
area of not more than 60 sq.m.

v. Outstanding deposits with NHB on account of priority sector shortfall

6. Social Infrastructure

i. Loans up to a limit of ₹8 crore per borrower for setting up schools, drinking water facilities and sanitation
facilities including construction/refurbishment of household toilets and water improvements at
household level, etc.

ii. Loans up to a limit of ₹12 crore per borrower for building health care facilities in Tier II to Tier VI centres.

iii. Loans to MFIs extended for on-lending to individuals and also to members of SHGs/JLGs for water and
sanitation facilities

7. Renewable Energy

Bank loans up to a limit of ₹35 crore to borrowers for renewable energy-based power generators and for
renewable energy based public utilities, viz., street lighting systems, remote village electrification etc., will be
eligible for priority sector classification. For individual households, the loan limit will be ₹10 lakh per borrower.

8. Others

i. Loans not exceeding ₹2.00 lakh provided by banks to SHG/JLG for activities other than agriculture or
MSME, viz., loans for meeting social needs, construction or repair of house, construction of toilets or any
viable common activity started by SHGs.
ii. Loans to distressed persons [other than distressed farmers indebted to non-institutional lenders] not
exceeding ₹1.00 lakh per borrower to prepay their debt to non-institutional lenders.
iii. Loans sanctioned to State Sponsored Organisations for Scheduled Castes/ Scheduled Tribes for the

Prepared by: Raman Luthra

Chartered Accountant
 specific purpose of purchase and supply of inputs and/or the marketing of the outputs of the beneficiaries
of these organisations
iv. Loans up to ₹50 crore to Start-ups, that are engaged in activities other than agriculture or MSME.

MISCELLANEOUS

1. Investments by banks in ‘Securitisation Notes’, representing loans to various priority sector categories,
except 'others' category, are eligible for classification under the respective categories depending on the
underlying assets.
➢ Exception - Investment by banks in securitisation notes with loans against gold jewellery originated by
NBFCs as underlying, are NOT ELIGIBLE for priority sector status.

2. Transfer of Assets through Direct Assignment/Outright purchase

Assignment/outright purchase of pool of assets by banks representing loans under various priority sector
categories, except the ‘others’ category, will be eligible for classification under the respective categories,
subject to the following conditions:
i. The assets are originated by banks and financial institutions and are eligible to be classified as priority
sector advances prior to the purchase.
ii. Banks shall report the outstanding amount actually disbursed to priority sector borrowers and not the
premium embedded amount paid to the seller.
iii. Loans against gold jewellery acquired by banks from NBFCs are NOT ELIGIBLE for priority sector status.

3. Inter Bank Participation Certificates (IBPCs) - IBPCs bought by banks, on a risk sharing basis, are eligible for
classification under the respective priority sector categories, provided the underlying assets are eligible to be
classified under the respective categories.

4. Priority Sector Lending Certificates (PSLCs) - The net nominal value of the PSLCs issued and purchased will be
eligible for classification under the respective priority sector categories provided the underlying assets
originated by banks are eligible to be classified as priority sector advances.

On-lending

1. Bank loans to MFIs (NBFC-MFIs, Societies, Trusts, etc.) for On-Lending

I. Loans by banks other than SFBs to registered NBFC-MFIs and other MFIs (Societies, Trusts, etc.) which
are members of RBI recognised Self-Regulatory Organisation (SRO) for the sector, for on-lending to
individuals and also to members of SHGs/JLGs
II. Loans by SFBs to registered NBFC-MFIs and other MFIs (Societies, Trusts, etc.) which are members of
RBI recognised SRO of the sector, and which have a ‘gross loan portfolio’ (GLP) of UP TO ₹500 crore as
on March 31 of the previous year, for the purpose of on-lending to individuals
o In case the GLP of the NBFC-MFIs/other MFIs exceeds the stipulated limit at a later date, all
priority sector loans created prior to exceeding the GLP limit will continue to be classified by
the SFBs as PSL till repayment/maturity, whichever is earlier.

Prepared by: Raman Luthra

Chartered Accountant
 2. Bank loans to NBFCs for On-Lending
Bank credit to registered NBFCs (other than MFIs) for on-lending will be eligible for classification as priority
sector lending under the respective categories subject to the following conditions:
• Agriculture: Up to ₹10 lakh per borrower in respect of ‘term lending’ component under Agriculture
• Micro & Small enterprises: Up to ₹20 lakh per borrower
provided banks maintain disaggregated data of such loans in the portfolio.

3. Bank loans to HFCs for On-Lending

Bank credit to Housing Finance Companies (HFCs), approved by NHB for their refinance, for on-lending for
the purpose of purchase/construction/reconstruction of individual dwelling units or for slum clearance and
rehabilitation of slum dwellers, subject to an aggregate loan limit of ₹20 lakh per borrower under ‘Housing’
category.

4. Cap on On-Lending
Bank credit to NBFCs (including HFCs) for on-lending as applicable, will be eligible for PSL classification up to
an overall limit of 5% of individual bank’s total priority sector lending of the previous financial year.

Monitoring of Priority Sector Lending Targets

1. To ensure continuous flow of credit to priority sectors, the compliance of banks will be monitored on a
calendar quarter basis.
2. The data on priority sector advances shall be furnished by banks at quarterly and annual intervals, within 15
days and 1 month, respectively from the end of each quarter and financial year.
3. In respect of RRBs, the data on priority sector advances, in the above format, shall be furnished to NABARD
at quarterly and annual intervals.

Non-achievement of Priority Sector Targets

1. All banks reporting shortfall in priority sector lending vis-à-vis the prescribed target/sub-targets shall be
allocated amounts for contribution to the Rural Infrastructure Development Fund (RIDF) and other funds with
NABARD/NHB/SIDBI/MUDRA Ltd., as decided by the Reserve Bank
2. The interest rates payable to banks for their contribution to RIDF and other funds shall be as follows:

S. No. Shortfall in overall priority sector lending target Deposit Rates

1 Less than 5 percentage points Bank Rate minus 2 percentage points

2 5 and above, but less than 10 percentage points Bank Rate minus 3 percentage points

3 10 percentage points and above Bank Rate minus 4 percentage points

Note - In case of no shortfall in overall PSL target but shortfall in any sub-target, interest rate of Bank Rate
minus 2 percentage points will apply.

Prepared by: Raman Luthra

Chartered Accountant