Page 35 - Banking Finance March 2025

ARTICLE

Priority Sector

Lending Norms -

Historical trend and

Abhay Dandwate
Time to realign Ex Banker and Currently Chief

Risk Officer and Head
Strategy, National Bulk
Handling Corporation

Climate change has led to the emergence of new concept of green financing which requires huge
commitment of allocation of funds .Climate adaptation has taken centre stage at recently held
COP29 at the UN global climate summit .

P Prior to the independence access to the housing, export credit, education, social infrastructure and
renewable energy ensuring equitable credit distribution to
institutional credit through banks was confined to
the big business houses and elite class. Post
these sectors.
independence particularly late 60s it was realized
that if the country has to move toward developing path its Priority sector classification has undergone many tweaking
masses should grow economically, which led to the concept over the period initially, in 1974, the commercial banks were
of mass banking. Nationalization of Banks in 1969 and given a target of 33.33% of their total credit but following
introduction of Lead bank scheme, Service area approach the recommendations of Dr K S Krishnaswamy Committee,
coupled with rolling out of many centrally sponsored this target was later revised to 40%. The last detailed study
government schemes provided directional push towards and recommendation on priority sectors was undertaken in
upliftment of the large rural and urban poor population. 2012 by Nair committee. Post 2012 only minor changes have
been made in the priority sector guidelines.
The Origins of priority sector lending (PSL) can be traced
back to 1966 when Late Shri Morarji Desai realised the need Notwithstanding of many changes undertaken in the priority
for increasing credit to agriculture and small industries later sector lending framework it has remained by and large
the definition for priority sector was formalised based on a focused on Agriculture and MSME till today. The current
Reserve Bank of India (RBI) report in the National Credit regulation also requires banks to lend nearly 40% and 18%
Council in 1972. of their adjusted net bank credit (ANBC) to PSL and
Agriculture respectively. Over the years, banks have been
The broader principal of PSL policy is to mandate banks to achieving these target across banks, reflecting its
allocate a certain proportion of their loans to critical sectors importance in driving socio-economic development
such as agriculture, education, small and medium industries, particularly in underserved areas.

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