Priority Sector Lending – SBI Research Calls for Reforms Supporting India’s 2047 Goals
Priority Sector Lending – India’s priority sector lending framework may need a broad overhaul to match the country’s changing financial requirements and its Viksit Bharat 2047 roadmap, according to a report by SBI Research. The study said policy changes are needed to ensure that credit continues reaching vulnerable groups while also supporting sectors that will shape India’s future economic expansion.
Existing Framework Faces New Economic Demands
Priority Sector Lending, commonly known as PSL, was introduced in 1972 to improve the availability of institutional credit for sectors that were often overlooked by mainstream lenders. Over the decades, the system has helped channel bank funds towards agriculture, small businesses, education, housing and other socially important areas.
However, SBI Research said the current framework should now be updated to account for new financing needs. These include climate-related projects, renewable energy, sustainable development, electric mobility and large-scale infrastructure investment. The report noted that banks are already meeting the overall PSL target, which requires lending equivalent to 40 per cent of Adjusted Net Bank Credit.
Higher Loan Limits Suggested for Key Categories
The report recommended raising lending limits under several existing PSL segments. It proposed increasing the renewable energy loan ceiling from Rs 35 crore to Rs 100 crore, allowing larger clean energy projects to receive priority sector support.
It also suggested raising the PSL-eligible education loan limit from Rs 25 lakh to Rs 50 lakh. Housing loan limits may also need revision to reflect changing property values and borrowing needs. In addition, the report proposed expanding the limits for social infrastructure financing and increasing the amount banks can lend to non-banking financial companies for onward lending to eligible borrowers.
Infrastructure and Climate Finance Could Be Added
SBI Research recommended expanding the scope of priority sector lending to include infrastructure projects. It said India will require substantial long-term funding for roads, transport networks, urban development, logistics, power systems and other essential facilities as it works towards its 2047 development targets.
The report suggested two possible approaches: infrastructure loans could be given priority sector status, or such lending could be excluded from Adjusted Net Bank Credit calculations used to determine PSL compliance. According to the study, the present system does not fully recognise the role banks play in financing major infrastructure projects.
It also proposed a separate PSL category for climate sustainability finance. Investments in green bonds and environmental, social and governance bonds could be considered eligible under PSL norms. Such changes, the report said, would encourage financial institutions to support projects linked to climate resilience and sustainable growth.
Government Schemes and Rural Funding Need Attention
The report further suggested that loans issued under government-backed schemes should be treated as lending to micro enterprises and weaker sections. This could improve credit access for borrowers who are covered by public welfare and business-support programmes.
SBI Research also called for changes to the Rural Infrastructure Development Fund. It said banks may currently find it more attractive to buy Priority Sector Lending Certificates than contribute to the fund. Revising capital treatment and interest-related provisions could create better incentives for banks to support rural infrastructure financing.
Reforms Could Strengthen Long-Term Credit Access
The report said a revised PSL system could improve the flow of funds to sectors that are central to India’s next stage of development. Updating lending categories and limits may help banks balance traditional financial inclusion goals with newer requirements such as green finance, infrastructure development and clean energy investment.
As India moves towards its Viksit Bharat 2047 objective, the report said the priority sector lending framework should remain flexible enough to support both underserved borrowers and the industries expected to drive long-term economic growth.