The central bank has also decided to put in place an incentive framework for banks in order to address the regional disparities in the flow of priority sector credit.
The Reserve Bank of India (RBI) has tweaked priority sector lending (PSL) norms to include loans to startups. Borrowing limits for the renewable energy sectors-- solar power and compressed bio-gas plants-- are also being raised by the central bank.
In his speech following the Monetary Policy Committee (MPC) meet, RBI Governor Shaktikanta Das said: "With a view to aligning the guidelines with emerging national priorities and bring sharper focus on inclusive development, the Priority Sector Lending (PSL) guidelines have been reviewed."
The central bank has also decided to put in place an incentive framework for banks in order to address the regional disparities in the flow of priority sector credit. Under the revised PSL norms, the RBI has also increased the targets for lending to 'Small and Marginal Farmers' and 'Weaker Sections'.
"While higher weightage will be assigned for incremental priority sector credit in the identified districts having lower credit flow, a lower weightage would be assigned in identified districts where the credit flow is comparatively higher," the RBI said.
Under existing guidelines, bank loans up to a limit of Rs 150 million for purposes like solar power generators, biomass power generators, wind mills, micro-hydel plants and for non-conventional energy based public utilities like street lighting systems and remote village electrification are currently eligible to be classified under priority sector loans under the ‘Renewable Energy’ category. For individual households, the loan limit is Rs 1 million per borrower.
The PSL guidelines were last reviewed by the RBI in April 2015. The central bank said the revised guidelines also aim to encourage and support environment friendly lending policies to help achieve Sustainable Development Goals (SDGs).
Priority sector lending normsThe RBI mandates banks to lend a certain portion of their funds to specified sectors-- agriculture, micro, small and medium enterprises (MSMEs), export credit, education, housing, social infrastructure, renewable energy
and others.The idea behind this is to ensure that adequate institutional credit reaches some of the rather vulnerable sectors of the economy, which otherwise may not be attractive for banks from the profitability point of view.