Priority sector loan norms to get a rejig

Bank deposits in rural funds to count as priority sector exposure

- Subhash Narayanan

The government is considering restructuring the priority sector lending (PSL) scheme to allow deposits made by banks in the Rural Infrastructure Development Fund (RIDF) and such other funds to qualify as exposure under PSL, two people informed of the development said.

The proposed changes are expected to provide banks additional flexibility in meeting sector-specific PSL targets and free up capital for extending credit to industrially vibrant sectors, fostering economic growth.

Reserve Bank of India (RBI) regulations require banks to allocate 40% of their adjusted net bank credit (ANBC) for the priority sector, comprising agriculture, small and medium enterprises, exports, and economically vulnerable groups such as small farmers, micro-enterprises, and disadvantaged segments.

Banks approached the finance ministry, requesting changes in PSL classification, according to one of the two people familiar with the development.

The ministry is now likely to take up the matter with RBI, and a decision to restructure the PSL norms is expected to be taken soon, the person said.