Question

Which of the following is NOT eligible for classification under priority sector lending?

• A. Loans to food processing units
• B. Loans to Regional Rural banks
• C. Loans to micro enterprises
• D. Loans to Agri Infrastructure

Answer 1

Answer:

B. Loans to Regional Rural banks

Priority Sector Lending (PSL) Overview

• Priority Sector Lending refers to the specific mandates issued by the Reserve Bank of India (RBI) requiring commercial banks to allocate a specific portion of their Adjusted Net Bank Credit (ANBC) to sectors vital for the national economy.
• The current target for domestic commercial banks is 40% of their ANBC, while foreign banks with 20 branches and above are also required to meet this 40% target.

Categories Eligible under PSL

• Agriculture: Includes farm credit, agriculture infrastructure, and ancillary activities.
• Micro, Small, and Medium Enterprises (MSMEs): Defined as per the MSME Development Act.
• Export Credit: Incremental export credit over the corresponding date of the preceding year.
• Education: Loans to individuals for educational purposes in India and abroad.
• Housing: Loans for purchase or construction of dwelling units within specified cost limits.
• Social Infrastructure: Credit for schools, health care facilities, drinking water, and sanitation.
• Renewable Energy: Loans for solar-based power generators, biomass-based power, and wind mills.
• Others: Loans to Weaker Sections, Self Help Groups (SHGs), and distressed persons.

Exclusions from PSL

• Regional Rural Banks (RRBs) are mandated to provide PSL, but loans to RRBs by sponsor banks or other commercial banks are not classified as priority sector advances.
• Investments in capital market instruments, real estate (except those under defined housing limits), and consumer durables do not qualify.
• Large-scale infrastructure projects that do not fall under the stipulated social or renewable energy sub-categories are ineligible.

Important Regulatory Context

• The Priority Sector Lending Certificate (PSLC) mechanism allows banks with a shortfall in their PSL targets to purchase certificates from banks that have an excess, facilitating better compliance.
• Non-compliance with PSL targets necessitates that banks deposit the shortfall into the Rural Infrastructure Development Fund (RIDF) maintained by NABARD.