RBI Amends Master Directions on Priority Sector Lending

The Reserve Bank of India (RBI) has implemented substantial changes to its Master Directions on Priority Sector Lending (PSL), impacting all Commercial Banks, including Regional Rural Banks (RRBs), Small Finance Banks (SFBs), Local Area Banks, and Primary (Urban) Cooperative Banks (UCBs).

Below are the key changes:

Regional Disparities in Credit Flow (Para 7):

  • Existing Provision: From FY 2021-22, districts were ranked based on per capita credit flow to the priority sector. A higher weight (125%) was assigned to districts with lower credit flow (less than ₹6,000 per capita), and a lower weight (90%) to districts with higher credit flow (more than ₹25,000 per capita). This system was valid until FY 2023-24.
  • Revised Provision: Effective from FY 2024-25, districts will continue to be ranked on per capita credit flow. The threshold has been updated: districts with less than ₹9,000 per capita PSL will receive a higher weight (125%), and those with more than ₹42,000 per capita PSL will receive a lower weight (90%). This framework will be valid until FY 2026-27. Districts not listed in Annexes IA and IB will retain a 100% weightage.

MSME Definition and Classification (Para 9):

Reporting by UCBs (Para 27):

Effective Period: The guidelines will be effective from FY 2024-25 to FY 2026-27.

These amendments underscore RBI’s commitment to enhancing financial inclusion and supporting economic development through structured lending practices across diverse banking institutions.