PSL Reforms-2020: Weightage to poor districts

Question 1

What are PSL Reforms-2020?

Answer 1

PSL Reforms-2020 are changes made by the Reserve Bank of India (RBI) to the Priority Sector Lending program. The reforms aim to encourage banks to lend more money to underserved sectors of the economy and less developed regions.

Question 2

How does the RBI classify districts under the PSL Reforms-2020?

Answer 2

The RBI classifies districts based on their level of credit penetration. Districts with lower levels of previous lending (“Low Credit Penetration”) are given a higher weight, and districts with higher levels of lending (“High Credit Penetration”) are given lower weight.

Question 3

What is the purpose of weighting districts differently under the PSL Reforms?

Answer 3

The weighting system is designed to discourage banks from focusing their Priority Sector Lending on already well-developed districts. It incentivizes banks to increase lending in less developed areas, promoting more balanced regional development across India.

Question 4

Provide an example of a district that would be considered “Low Credit Penetration” and one considered “High Credit Penetration”.

Answer 4

Low Credit Penetration: Tawang, Dantewada
High Credit Penetration: Ahmedabad, Pune