Revised RBI Guidelines on Priority Sector Lending to Further Stimulate Economic Growth: SBI Analysis

New Delhi, March 26 (NationPress) The recent modifications in the priority sector lending (PSL) regulations by the Reserve Bank of India (RBI) are expected to significantly enhance economic growth and refine the foundational elements of production factors, particularly benefiting MSMEs, agriculture and related sectors, housing, and exports, as highlighted in a report by SBI Research on Wednesday.

This week, the RBI released updated PSL guidelines to improve the allocation of bank credit towards the economy's priority sectors. These amendments will take effect on April 1.

The report indicates that the revised PSL regulations include increased loan limits, particularly for housing loans, which will broaden PSL coverage and expand the range of purposes eligible for classification under 'Renewable Energy'.

Furthermore, the overall PSL target for urban cooperative banks (UCBs) has been adjusted to 60 percent of the Adjusted Net Bank Credit (ANBC) or Credit Equivalent of Off-Balance Sheet Exposures (CEOBSE), whichever is greater.

“The elevated limits in the housing sector are anticipated to stimulate low-cost/affordable housing across various demographic segments, especially in tier-IV/V/VI cities where banks, along with non-bank entities, can discover new opportunities driven by the increased demand for personal housing post-pandemic,” the report elaborated.

The explicit acknowledgment and prioritization of renewable energy within the PSL framework have alleviated credit limitations, leading to an increase in the share of non-conventional energy credit within overall energy credit, fostering credit access to the NCE sector that has also seen significant policy support, as stated in the SBI report.

“As larger banks struggle to meet PSL targets, it would be wise to classify all infrastructure loans related to road projects, ports, railways, airports, and energy sector highways as priority sector loans or exempt them from ANBC calculations for PSL compliance, aligning with infrastructure bonds raised for financing infrastructure and affordable housing,” the report suggested.

The RBI has also raised the loan limit for repairing damaged residential units in the updated circular.

This creates new avenues for credit distribution for financial institutions in a secure niche market, reducing the burden on homeowners seeking liquidity for necessary repairs, and thus opens up a significant credit market potential, according to the report.

India is pursuing one of the world's most extensive renewable energy expansions with its target of 500 GW of non-fossil fuel installed capacity by 2030 and a Net Zero goal by 2070.

Previously, on July 1, 2015, the RBI had broadened the scope of PSL norms to encompass loans up to Rs 15 crore for purposes such as solar power generation, biomass power generation, and micro-hydel plants, among others.

This limit was later increased to Rs 30 crore per borrower on September 4, 2020.

In the latest guidelines, the cap has been raised to Rs 35 crore per borrower, while the loan limit for individual households remains at Rs 10 lakh per borrower.

“Although the increment of Rs 5 crore may seem minor compared to the previous revision in 2020 (over a five-year period), these small policy adjustments will significantly benefit the NCE sector, helping achieve the dual goals of clean energy and PSL by promoting lending to the sector,” stated the SBI report.