State Bank of India economists have pitched for a comprehensive review of the priority sector lending (PSL) guidelines, including the classification of infrastructure loans under the mandatory slabs. Citing the steep surge in PSL Certificates (PSLCs) trading to ₹12.2 trillion in FY25 against ₹1.8 trillion in FY18, the economists noted that excluding such buys or money parked in the rural infrastructure development fund, no bank is able to fulfil the 40% PSLC target. The biggest focus of the paper was the need to incentivise infrastructure investments through the bank lending channel, especially given national priorities. As per SBI economists, "We need huge investments in infrastructure to achieve the PM's vision of 2047. Long-term resources available for the same are limited in the absence of a vibrant bond market." The report emphasized that "Possibly, an opportune time has now come to assess future needs of financial inclusion and priority sector lending and make policy changes needed to ensure access to finance to weaker sections in line with Viksit Bharat objective." The paper pitched for all infrastructure loans to be given priority sector status or be exempt from the calculation of ANBC (adjusted net bank credit) for PSL achievement. However, the economists noted a key constraint: "However, infrastructure funding undertaken by banks from their own resources is not allowed to be classified under PSL."
Given that growth in home loan under PSL is not in tandem with growth in overall housing loan portfolio, the economists proposed that limits to housing sector may be reasonably increased. The latest SBI report confirms that limits to housing sector may be reasonably increased (say ₹1 crore in metro centres and ₹75 lakh for other centres). The recommendation is driven by the sharp increase in residential property prices over the past few years, with the average ticket size of incremental home loans expected to rise to around ₹45-50 lakh, which is already close to the current PSL eligibility thresholds. Consequently, growth in housing loans qualifying under PSL has not kept pace with the overall expansion in banks' housing loan portfolios. If the proposed revision is accepted, a larger number of homebuyers, particularly in metro cities where property prices are significantly higher, could become eligible for loans that qualify under the priority sector category.
In view of the substantial increase in the cost of education over the past few years, the economists proposed that the loan limit of ₹25 lakh to individuals for educational purposes eligible for PSL classification may be reasonably increased to a higher level (for example ₹50 lakh). The latest SBI report confirms this recommendation, stating that the education loan limit eligible for PSL classification may be doubled to ₹50 lakh from ₹25 lakh. The report noted that the cost of higher education has increased substantially in recent years because of rising fees at private medical, engineering and professional institutions, while a growing number of Indian students are pursuing overseas education, further increasing financing requirements. Considering education a national priority, the report said the existing limit no longer reflects current realities and should be revised upward to improve access to affordable credit. Additionally, the economists recommended that under PSL, the limit on bank loans to borrowers for renewable energy-based power generation and for renewable energy-based public utilities be upped from ₹35 crore to ₹100 crore. For individual households (rooftop solar plants), the loan limit has been proposed to be increased to ₹2 crore from ₹10 lakh per borrower.
In the case of food & agro processing loan as well as agri infra loans, the economists recommended upping the limit per borrower to ₹200 crore for individual banks, with aggregate sanctioned limits of ₹500 crore per borrower (from ₹100 crore) from the banking system under Agriculture PSL eligibility. The economists also suggested increasing the social infrastructure loan limit to ₹25 crore and enhancing the per-borrower cap on bank loans for on-lending to ₹25 lakh for agriculture and ₹50 lakh for other sectors. In social infrastructure, the economists suggested revising upwards the loan limits for schools and healthcare facilities to ₹15 crore (from ₹8 crore) and ₹25 crore (from ₹12 crore), respectively, in all cities. Additionally, the economists recommended that under PSL, the limit on bank loans to borrowers for renewable energy-based power generation and for renewable energy-based public utilities be upped from ₹35 crore to ₹100 crore.
In the case of export credit, the economists suggested either removing or enhancing the cap of ₹50 crore per exporter for PSL classification to a reasonable level of, say, ₹200 crore. The economists also recommended removal of upper cap of 2 per cent of a bank's credit under PSL. Referring to a cost-benefit analysis of Rural Infrastructure Development Fund (RIDF) vis-à-vis PSLC, which indicates that it is profitable for banks to purchase PSLCs compared to investment in RIDF, the economists recommended that investments in RIDF may be exempt from purview of risk weight and CRAR calculation. The report also sought reforms in the RIDF framework, including exemption of RIDF deposits from risk weight and capital adequacy calculations and rationalisation of penal charges. The report added that "banks currently find it more beneficial to purchase Priority Sector Lending Certificates (PSLCs) than invest in RIDF, highlighting the need to rebalance the framework."
The existing PSL framework, introduced by the RBI in 1972 to improve credit access for underserved sectors, has largely succeeded in helping banks meet the mandatory lending target. According to the latest SBI report, banks have consistently met the overall PSL target of 40% of ANBC since FY18, with provisional FY26 estimates indicating overall PSL at 45% of ANBC compared to 43.6% in FY25. However, the economists noted that the headline achievement masks growing reliance on inorganic avenues such as PSLCs and the Rural Infrastructure Development Fund (RIDF). Excluding these components, banks have been unable to meet the 40% target, with organic PSL falling to 34.4% of ANBC in FY25. The report emphasized that "the existing PSL framework, introduced in 1972 to improve credit flow to underserved sectors, has served its purpose but now requires reforms to address emerging priorities such as ESG financing, sustainable development, infrastructure financing and the electric vehicle ecosystem." Any changes to the PSL framework would require approval from the RBI, and if adopted, the proposed revisions could enable more homebuyers and students to access loans under the priority sector category while helping banks direct credit towards sectors considered vital for inclusive and sustainable economic growth.
