New Delhi: SBI Research has called for a comprehensive review of Priority Sector Lending (PSL) guidelines, saying the existing framework should be aligned with India’s evolving financing needs and the Viksit Bharat 2047 vision. The report recommends expanding the scope of priority sector lending to include infrastructure, climate finance, renewable energy and other emerging sectors critical to the country’s long-term economic growth.

According to the report, the current PSL framework, introduced in 1972 to improve credit access for underserved sectors, has largely fulfilled its original objective but now requires reforms to meet changing development priorities.

Framework should reflect emerging sectors

SBI Research said India’s financial system needs to adapt to emerging areas such as environmental, social and governance (ESG) financing, sustainable development, infrastructure funding and the electric vehicle ecosystem.

The report noted that banks are currently meeting the mandatory overall PSL target of 40 per cent of Adjusted Net Bank Credit (ANBC) comfortably. However, it argued that the framework should evolve to better support India’s long-term development ambitions.

It stated that the time is appropriate to reassess financial inclusion and priority sector lending policies to ensure adequate access to finance for weaker sections while supporting the broader objectives of Viksit Bharat 2047.

Higher lending limits recommended

The report proposed increasing lending limits across several existing priority sector categories to reflect present-day financing requirements.

Among the recommendations are:

  • Increasing the renewable energy loan limit eligible under PSL from ₹35 crore to ₹100 crore.
  • Raising the education loan ceiling from ₹25 lakh to ₹50 lakh.
  • Revising eligibility limits for housing loans.
  • Expanding lending limits for social infrastructure projects.
  • Enhancing banks’ lending limits to Non-Banking Financial Companies (NBFCs) for on-lending purposes.

According to SBI Research, these revisions would enable banks to provide greater financial support to sectors that are increasingly important to India’s economy.

Infrastructure and climate finance should be included

The report also recommended broadening the scope of priority sector lending by introducing new eligible categories.

It suggested:

  • Including infrastructure financing under PSL.
  • Creating a separate category for climate sustainability finance.
  • Allowing investments in green bonds and ESG bonds to qualify as priority sector lending.
  • Treating loans extended under government-sponsored schemes as lending to micro enterprises and weaker sections.

SBI Research said these changes would better reflect India’s evolving development priorities while strengthening financial inclusion.

Greater support needed for infrastructure

The report highlighted infrastructure financing as an area requiring stronger policy support to help India achieve its economic goals by 2047.

It proposed granting priority sector status to all infrastructure loans or, alternatively, excluding such lending from ANBC calculations used to determine PSL compliance.

According to the report, the current framework does not adequately recognise banks’ contribution to financing major infrastructure projects despite their importance for national development.

RIDF reforms also suggested

SBI Research also recommended reforms to the Rural Infrastructure Development Fund (RIDF) to improve incentives for banks.

The report observed that banks currently find it more attractive to purchase Priority Sector Lending Certificates (PSLCs) than to invest in the RIDF.

It suggested that changes to capital treatment and interest provisions could help rebalance the framework and encourage greater investment in rural infrastructure.

Aligning credit policy with Viksit Bharat

The report concluded that updating priority sector lending norms in line with emerging sectors and expanding eligible lending categories would improve credit delivery to areas vital for India’s next phase of economic development.

It said such reforms would strengthen financial inclusion, promote sustainable growth and better support the country’s Viksit Bharat 2047 vision by ensuring greater access to finance for priority sectors and future-focused industries.