Amendments to the Master Directions on Priority Sector Lending (PSL)
The Reserve Bank of India (RBI) has announced significant amendments to the Master Directions (MD) on Priority Sector Lending (PSL) initially issued on September 04, 2020. These amendments address various aspects of PSL, particularly focusing on adjustments in PSL achievement weights, the definition of Micro, Small & Medium Enterprises (MSMEs), and the monitoring of PSL targets.
Adjustments for Weights in PSL Achievement
The existing MD specified that the lists of districts with comparatively high and low PSL credit, detailed in Annex IA and IB, were valid until FY 2023-24, subject to review. Following a recent review, these lists have been updated and will remain valid until FY 2026-27, with another review scheduled thereafter. Starting from FY 2024-25, a higher weight of 125% will be assigned to the incremental priority sector credit in districts where the credit flow is comparatively lower (per capita PSL less than ₹9,000). Conversely, a lower weight of 90% will be assigned to districts where the credit flow is comparatively higher (per capita PSL greater than ₹42,000). These adjustments aim to address regional disparities in the flow of priority sector credit and create an incentive framework for districts with lower credit flow while disincentivizing those with higher credit flow.
Updated Definition of MSMEs
The definition of MSMEs has been updated for clarity and now references the Master Direction – Lending to Micro, Small & Medium Enterprises (MSME) Sector. This change ensures consistency and clarity in the classification of MSMEs under priority sector lending. The updated MD specifies that all bank loans to MSMEs will qualify for classification under priority sector lending, as per the guidelines provided in the Master Direction – Lending to Micro, Small & Medium Enterprises (MSME) Sector.
Monitoring of Priority Sector Lending Targets
Significant changes have been made to the monitoring and reporting requirements for Urban Cooperative Banks (UCBs). Previously, UCBs were required to furnish data on priority sector advances in specific reporting formats (‘Statement I’ and ‘Statement II (Part A to D)’) at quarterly and annual intervals to the Regional Offices of the Department of Supervision (DoS), RBI. This provision has now been repealed. Instead, UCBs will be guided by the Master Direction – Reserve Bank of India (Filing of Supervisory Returns) Directions – 2024, dated February 27, 2024. The applicable return for reporting PSL data by UCBs is now prescribed at Sl. No. 61 of Annex III of the MD on FSR. This amendment simplifies the reporting process and aligns it with the new supervisory returns framework.
These amendments to the Master Directions on PSL, detailed in the updated MD and FAQs on the Bank’s website, reflect the RBI’s ongoing efforts to enhance the effectiveness and clarity of priority sector lending regulations. They aim to ensure more balanced credit flow across regions, better classification of MSMEs, and streamlined reporting requirements for UCBs.
