Priority Sector Lending (PSL)

Question 1

What is Priority Sector Lending (PSL)?

Answer 1

PSL is a mandate by the Reserve Bank of India (RBI) requiring banks to allocate a certain percentage of their loans to specific sectors deemed important for economic development, such as agriculture, small businesses, and weaker sections of society.

Question 2

In what year did the RBI first introduce the term “Priority Sector Lending”?

Answer 2

1968

Question 3

What were the three original priority sectors established in 1968?

Answer 3

1) Agriculture, 2) Small Industries, 3) Exporters

Question 4

What is the purpose of Priority Sector Lending (PSL)?

Answer 4

To ensure that specific sectors of the economy, considered important for development, receive adequate credit from banks.

Question 5

What was the role of the UK Sinha Committee in relation to PSL?

Answer 5

The UK Sinha Committee (2019) focused on MSME loan reforms and suggested further changes to the PSL guidelines.

Question 6

Did the scope of Priority Sector Lending expand over time?

Answer 6

Yes, more sectors were gradually included in the PSL framework.

Question 7

What were the original three priority sectors identified by the RBI in 1968?

Answer 7

Agriculture
Small-scale industries
Exporters

Question 8

What is the current overall PSL target for Indian Scheduled Commercial Banks and Foreign Banks with 20 or more branches?

Answer 8

40% of their net bank credit

Question 9

After the 2020 reforms, what is the minimum percentage of loans that must be allocated to Weaker Sections?

Answer 9

12%

Question 10

Name three categories included under “Weaker Sections” for PSL purposes.

Answer 10

(Choose any three)
Scheduled Castes (SC)
Scheduled Tribes (ST)
Women
Physically Handicapped (PH)
Minorities
Manual Scavengers
Artisans

Question 11

Describe the implementation of the 2020 PSL quota reforms.

Answer 11

The reforms will be implemented in a phased manner by the year 2023-24.

Question 12

What is the key benefit of the 2020 PSL reforms?

Answer 12

Increased loan availability for weaker sections of society and small farmers, supporting poverty reduction goals of the United Nations.

Question 13

Explain the difference between “minimum” and “maximum” in the context of PSL quotas.

Answer 13

PSL quotas set a minimum percentage of loans banks must give to priority sectors. Banks can choose to exceed this minimum if they wish.

Question 14

How do loans given to NBFCs factor into a bank’s PSL compliance?

Answer 14

If a bank gives a loan to an NBFC, and that NBFC then lends money to priority sectors, the bank’s loan can count towards its PSL quota.

Question 15

Do PSL norms apply to NBFCs?

Answer 15

No, PSL norms are specifically designed for banks.