Definition
Priority Sector Lending (PSL)
Priority Sector Lending norms require banks to direct a minimum share of their credit to sectors such as agriculture, MSMEs and weaker sections.
The RBI mandates that banks lend a set proportion of their adjusted credit to priority sectors — agriculture, micro and small enterprises, education, housing, renewable energy and weaker sections — to ensure credit reaches socially important areas that markets might underserve.
Banks short of their targets can buy Priority Sector Lending Certificates from over-achievers or contribute to designated funds with NABARD and SIDBI. PSL is a major channel through which policy goals on inclusion and rural development are pursued via the banking system.
Related terms
- Reserve Bank of India (RBI)The RBI is India's central bank and monetary authority, responsible for issuing currency, setting policy rates, regulating banks and managing the government's debt.
- NABARDNABARD is the National Bank for Agriculture and Rural Development, the apex development financial institution for agriculture and the rural economy.
- SIDBISIDBI is the Small Industries Development Bank of India, the principal financial institution for promoting and financing the MSME sector.
Plain-English explainer from The Dispatch Investors Encyclopedia. General information, not financial advice.