Consolidation of Instructions Related to Priority Sector Lending – Drafts for Comments
RBI - Press Releases · Published 5 November 2026 · Last updated
The RBI has released draft entity-specific directions consolidating priority sector lending norms across commercial banks, SFBs, RRBs, LABs, and UCBs, while retaining core mandatory lending targets and district-level credit incentive weights.
Key points
- The Reserve Bank of India (RBI) proposed consolidating its priority sector lending (PSL) framework into five entity-specific Directions, inviting stakeholder feedback by November 26, 2026.
- The five separate draft directions cover Commercial Banks, Small Finance Banks (SFBs), Local Area Banks (LABs), Regional Rural Banks (RRBs), and Urban Co-operative Banks (UCBs).
- The draft framework retains overall PSL targets at 40% of Adjusted Net Bank Credit (ANBC) or Credit Equivalent of Off-Balance Sheet Exposures (CEOBE) for commercial banks and LABs.
- Higher overall PSL mandates are retained for specialized institutions: 75% of ANBC/CEOBE for Regional Rural Banks and 60% for Small Finance Banks and Urban Co-operative Banks.
- For commercial banks, the agriculture lending target remains 18% of ANBC, with sub-targets of 14% for non-corporate farmers and 10% for small and marginal farmers.
- Commercial banks must also maintain minimum PSL allocations of 7.5% of ANBC towards micro enterprises and 12% towards weaker sections.
- Existing caps of Rs 100 crore for agriculture infrastructure and food-processing loans, alongside the 5% cap on bank lending through NBFCs for on-lending, are carried forward.
- To address regional credit skew, incremental PSL credit in identified districts with lower credit flow receives an incentivised weight of 125%, whereas districts with higher credit flow receive a weight of 90%.
- The draft rules revise ANBC computation to allow banks to exclude advances extended from fresh FCNR(B) and NRE deposits that qualify for CRR/SLR exemptions, capped at the outstanding eligible deposits.
- Instructions issued over time that are not incorporated into these consolidated draft Directions will be repealed upon formal notification.
Background
- Priority Sector Lending was instituted to direct institutional credit towards sectors of national priority that lack adequate market-driven access to institutional finance.
- Over decades, the RBI issued piecemeal circulars and updates governing sectoral credit thresholds, eligibility caps, and non-compliance penalties.
- The RBI harmonized previous guidelines into the consolidated Priority Sector Lending – Targets and Classification Directions, 2025, which was subsequently updated with periodic amendments.
- Disparities in operating models between scheduled commercial banks, regional lenders, and cooperative banks necessitated distinct regulatory rulebooks suited to institutional capacity.
- On November 5, 2026, the RBI released five comprehensive draft Directions for public consultation via its 'Connect 2 Regulate' portal to repeal dispersed legacy circulars.
UPSC relevance, Prelims facts and Mains angle for this issue are in the full SWAदेSH note.
Original report: RBI - Press Releases