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Priority Sector Lending (PSL) guidelines need a comprehensive review to align with India's evolving financing needs and the Viksit Bharat 2047 vision, with greater focus on infrastructure, climate finance, renewable energy and higher lending limits across key sectors, according to an SBI Research report.

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"Possibly, an opportune time has now come to assess future needs of financial inclusion and priority sector lending and make policy changes needed to ensure access to finance to weaker sections in line with Viksit Bharat objective," The report said.

The report added that the existing PSL framework, introduced in 1972 to improve credit flow to underserved sectors, has served its purpose but now requires reforms to address emerging priorities such as ESG financing, sustainable development, infrastructure financing and the electric vehicle ecosystem. It noted that while banks are comfortably meeting the overall PSL target of 40 per cent of Adjusted Net Bank Credit (ANBC), the framework should evolve to support India's long-term growth ambitions.

Proposed Increases in Lending Limits

SBI Research proposed increasing lending limits under several existing PSL categories, including raising the renewable energy loan limit from Rs 35 crore to Rs 100 crore, increasing the education loan ceiling eligible for PSL from Rs 25 lakh to Rs 50 lakh, revising housing loan limits, expanding social infrastructure loan limits, and enhancing bank lending limits to NBFCs for on-lending.

Expanding PSL Scope to New Sectors

The report also recommended widening the scope of PSL by including infrastructure lending, creating a separate category for climate sustainability finance, allowing investments in green and ESG bonds to qualify under PSL, and classifying loans under government-sponsored schemes as lending to micro enterprises and weaker sections. According to SBI Research, these measures would better reflect the country's changing development priorities while improving financial inclusion.

Prioritizing Infrastructure Finance

Looking ahead, the report said infrastructure financing should receive greater policy support as India requires significant long-term investment to achieve its 2047 development goals.

It suggested either granting priority sector status to all infrastructure loans or excluding such lending from ANBC calculations for PSL compliance, arguing that existing rules do not adequately recognise banks' infrastructure financing efforts.

Reforms for Rural Infrastructure Development Fund (RIDF)

SBI Research also called for reforms to the Rural Infrastructure Development Fund (RIDF), saying changes in capital treatment and interest provisions could improve incentives for banks. It noted that banks currently find it more beneficial to purchase Priority Sector Lending Certificates (PSLCs) than invest in RIDF, highlighting the need to rebalance the framework.

The report added that revising PSL norms in line with emerging sectors and expanding eligible categories could strengthen credit delivery to areas critical for India's next phase of economic growth while supporting the broader Viksit Bharat agenda.