Priority Sector Lending – RBI amends Master Directions

On June 21, 2024, the Reserve Bank of India (RBI) issued a significant update to the Master Directions on Priority Sector Lending (PSL). The amendments, detailed in circular RBI/2024-25/44 FIDD.CO.PSD.BC.No.7/04.09.01/2024-25, bring crucial changes to PSL guidelines, impacting all commercial banks, including Regional Rural Banks, Small Finance Banks, Local Area Banks, and Primary (Urban) Co-operative Banks, except Salary Earners’ Banks. These updates are part of the RBI’s continuous efforts to optimize the flow of credit to priority sectors and ensure balanced economic development across various districts in India.

Detailed Analysis

The latest amendments to the PSL guidelines address several key areas:

1. Adjustments for Weights in PSL Achievement (Para 7): The RBI has revised the weight assignments for incremental priority sector credit based on the latest review of district-level credit flows. Previously valid until FY 2023-24, the updated lists of districts with high and low PSL credit will now be effective until FY 2026-27. The revised guidelines specify:

• • Higher Weight (125%): Assigned to incremental credit in districts with lower per capita PSL (less than ₹9,000).
  • Lower Weight (90%): Assigned to incremental credit in districts with higher per capita PSL (greater than ₹42,000).

These changes aim to incentivize banks to channel more credit into underserved regions, promoting equitable economic growth.

1. Definition of MSMEs (Para 9): The definition of Micro, Small, and Medium Enterprises (MSMEs) has been clarified by referencing the Master Direction on Lending to MSME Sector. This alignment ensures consistency in the classification and treatment of MSMEs across various RBI guidelines.

2. Monitoring of Priority Sector Lending Targets (Para 27): A significant procedural change is the repeal of the existing requirement for Urban Co-operative Banks (UCBs) to submit quarterly and annual PSL data in the previous reporting formats. Instead, the new requirement, as per the Master Direction on Filing of Supervisory Returns (MD on FSR) dated February 27, 2024, mandates reporting PSL data in the format prescribed at Sl. No. 61 of Annex III of the MD on FSR. This streamlines the reporting process and integrates it with the broader supervisory framework.

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Reserve Bank of India

RBI/2024-25/44
FIDD.CO.PSD.BC.No.7/04.09.01/2024-25

June 21, 2024

The Chairman / Managing Director/
Chief Executive Officer
[All Commercial Banks including Regional Rural Banks,
Small Finance Banks, Local Area Banks and
Primary (Urban) Co-operative Banks other than Salary Earners’ Banks]

Madam/ Dear Sir,

Priority Sector Lending – Amendments to the Master Directions

Please refer to Master Directions (MD) on Priority Sector Lending (PSL) dated September 04, 2020 as updated from time to time. The following paras of the Directions stand amended in view of factors detailed thereunder.

2. Para 7 – Adjustments for weights in PSL Achievement:

The MD specifies that the lists of districts with comparatively high and low PSL credit detailed in Annex IA and IB of the MD are valid until FY 2023-24 subject to review thereafter. Based on a review, the lists of districts have been updated. These lists will remain valid until FY 2026-27 and will be reviewed thereafter. Accordingly, from FY 2024-25 onwards, a higher weight (125%) would 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), and a lower weight (90%) would 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). Therefore, para 7 of the MD on PSL has been updated as mentioned above.

3. Para 9 – Micro, Small & Medium Enterprises:

The definition of MSMEs has been referenced to the Master Direction – Lending to Micro, Small & Medium Enterprises (MSME) Sector, for clarity.

4. Para 27 – Monitoring of Priority Sector Lending targets:

The MD specifies that UCBs shall furnish data on priority sector advances in the reporting formats ‘Statement I’ and ‘Statement II (Part A to D)’ at quarterly and annual intervals, to the Regional Offices of DoS, RBI. This provision has been repealed in terms of Master Direction – Reserve Bank of India (Filing of Supervisory Returns) Directions – 2024 (MD on FSR) dated February 27, 2024. The applicable return for reporting PSL data by UCBs has been prescribed at Sl. No. 61 of Annex III of the MD on FSR. Accordingly, para 27 of MD as applicable to UCBs has been updated.

5. The relevant amendments made in the MD on PSL are detailed in the Annex.

6. The Master Directions and FAQs on Priority Sector Lending on the Bank’s website have been updated accordingly.

Yours faithfully,

(Nisha Nambiar)
Chief General Manager-in-Charge

Encl: As above

Annex