Credit gaps persist in sectors such as MSMEs, agriculture and among women entrepreneurs, even as banks have made considerable progress in meeting Priority Sector Lending (PSL) targets, with an achievement rate of 44.7 per cent as of March 31, said RBI Deputy Governor Swaminathan J.
He noted that Priority Sector Lending, which originated in the 1960s, was conceived as a tool to direct credit towards key sectors that had been overlooked by institutional lending, aligning with broader economic and social goals.
“The composition of priority sectors and their associated targets has evolved in response to changing economic landscapes and national priorities. Initially, it encompassed agriculture and small-scale industries, but over time, it expanded to include areas such as MSMEs, education, and renewable energy, while also applying to a broader range of banks.
“The guidelines for Priority Sector Lending were last updated in September 2007, introducing various adjustments, including credit for loans to start-ups, raised targets for small and marginal farmers and weaker sections, and harmonising instructions for different types of banks,” said Swaminathan in his speech at the Conference on Priority Sector Lending held at the College of Agricultural Banking, Pune.
eight categories
The PSL guidelines specify eight categories of priority sectors — (i) agriculture; (ii) MSME; (iii) export credit; (iv) education; (v) housing; (vi) social infrastructure; (vii) renewable energy; and (viii) others.
The Deputy Governor observed that a careful evaluation of the Priority Sector Lending categories reveals that there are elements of sustainability in nearly all these categories.
“Banks, as key players in the financial sector, bear an inalienable responsibility in advancing the agenda of inclusive growth, which is fundamental to the country’s economic and social development,” he told the heads of Priority Sector Lending verticals of banks.
He emphaised that as senior executives of banks, their role is pivotal in shaping the financial landscape of the nation.
“It is not merely about adhering to regulatory requirements but about embracing the spirit behind the Priority Sector Lending framework.
“It is about recognizing the imperative of reaching out to the underserved and marginalized sections of society, empowering MSMEs, bolstering renewable energy initiatives, and facilitating access to education and healthcare,” Swaminathan said.
proactive efforts
The Deputy Governor noted that proactive efforts are required in translating sustainability principles into action.
He asked the bankers to go beyond mere compliance and to imbue their organisation’s lending policies and practices with the essence of the sustainable (responsible or green) finance.
“It also involves fostering a culture of financial inclusion, where every loan and financial service extended contributes to the greater good of the nation. It means devising innovative financial products and services that cater to the unique needs of various priority sectors, be it agriculture, renewable energy, MSMEs, or social infrastructure.
“It entails understanding that your bank’s actions can have a transformative impact on the lives and livelihoods of millions of individuals and communities across India,” Swaminathan said.