Priority Sector Lending (PSL)
RBI makes banks lend a fixed share to farmers, small businesses and weaker sections. Many of your accounts come from here.
Priority sector lending (PSL) means RBI requires banks to give a fixed share of their loans to sectors that matter for the country but may not get enough credit on their own: farmers, small businesses, students, low-cost housing and weaker sections of society.
These borrowers are a large part of a recovery agent's work: the farmer with a Kisan Credit Card, the tailor with a MUDRA loan, the family with a small home loan. Knowing why these loans exist helps you handle them with the care the rules expect.
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The Eight PSL Categories
As listed in RBI's PSL Directions, 2025.
- check_circleAgriculture: crop loans, Kisan Credit Card loans, farm machinery, allied activities such as dairy, fisheries and poultry
- check_circleMicro, small and medium enterprises (MSMEs): all bank loans to MSMEs qualify
- check_circleExport credit
- check_circleEducation: loans to individuals up to ₹25 lakh, including vocational courses
- check_circleHousing: individual home loans within population-based limits
- check_circleSocial infrastructure: loans for schools, drinking water, sanitation and health care facilities, within per-borrower limits
- check_circleRenewable energy
- check_circleOthers: such as small loans to self-help groups and loans to help distressed persons repay informal moneylenders
PSL Targets for Banks
Shown as a percentage of Adjusted Net Bank Credit (ANBC, broadly the bank's total lending in India, adjusted as RBI specifies) or the credit equivalent of off-balance sheet exposures, whichever is higher.
| Bank type | Total PSL target |
|---|---|
| Domestic commercial banks, and foreign banks with 20 or more branches | 40% |
| Foreign banks with fewer than 20 branches | 40% (up to 32% can be export credit) |
| Regional Rural Banks | 75% |
| Small Finance Banks | 60% |
| Urban Co-operative Banks | 60% |
Sub-Targets for Domestic Commercial Banks
- Agriculture: 18%
- Within this, 14% must go to non-corporate farmers, and 10% to small and marginal farmers.
- Micro enterprises: 7.5%
- Loans to the smallest businesses, such as a kirana shop or a two-machine workshop.
- Weaker sections: 12%
- Includes small and marginal farmers, SC/ST borrowers, self-help groups, individual women beneficiaries up to ₹2 lakh, persons with disabilities, transgenders and notified minority communities. RRBs have a 15% target.
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Home Loans That Count as PSL
Centres with population of 50 lakh or more
Maximum loan
₹50 lakh
Maximum cost of house
₹63 lakh
Centres with population of 10 lakh to below 50 lakh
Maximum loan
₹45 lakh
Maximum cost of house
₹57 lakh
Centres with population below 10 lakh
Maximum loan
₹35 lakh
Maximum cost of house
₹44 lakh
| Where the house is | Maximum loan | Maximum cost of house |
|---|---|---|
| Centres with population of 50 lakh or more | ₹50 lakh | ₹63 lakh |
| Centres with population of 10 lakh to below 50 lakh | ₹45 lakh | ₹57 lakh |
| Centres with population below 10 lakh | ₹35 lakh | ₹44 lakh |
What Happens If a Bank Misses Its Target
A bank that falls short must place the shortfall amount in funds such as NABARD's Rural Infrastructure Development Fund (RIDF), or similar funds with NHB, SIDBI or MUDRA, at interest rates below the Bank Rate. This makes missing the target costly.
Recovering a Priority Sector Loan
A PSL loan is still a loan. The same repayment duty, the same recovery agent rules and the same legal routes apply. There is no rule that a priority sector borrower need not repay.
One legal limit matters often in farm lending: the SARFAESI Act does not apply to security interest in agricultural land (Section 31(i)). So a bank cannot use SARFAESI to take over farmland; it must use other routes such as a civil suit or the Debts Recovery Tribunal.
How the DRA Exam Tests This
Expect number questions on targets (40% overall, 18% agriculture, 7.5% micro, 12% weaker sections) and classification questions ("Is an education loan of ₹20 lakh a priority sector loan?" Yes, the limit is ₹25 lakh). The trap is old figures. RBI replaced its 2020 PSL Directions with new ones in 2025 and amended them again in January 2026, when the Small Finance Bank target was set at 60%. Older books may carry older numbers, so learn the current table.
FAQs
What is the priority sector lending target for banks?expand_more
40% of Adjusted Net Bank Credit (or the off-balance sheet equivalent, whichever is higher) for domestic commercial banks. RRBs have 75%, and Small Finance Banks and Urban Co-operative Banks 60%.
Which loans come under priority sector?expand_more
Loans to agriculture, MSMEs, export credit, education, housing, social infrastructure, renewable energy and certain others, each within RBI's limits.
Is a MUDRA loan a priority sector loan?expand_more
MUDRA loans go to micro enterprises, and RBI's PSL Directions say all bank loans to MSMEs qualify as priority sector lending.
Can a bank use SARFAESI to recover a farm loan?expand_more
Not against agricultural land. Section 31(i) of the SARFAESI Act excludes security interest in agricultural land, so the bank must use other legal routes.
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