A Critical Performance Analysis of Priority Sector Lending Through Commercial Banks

Abstract

Priority sector lending or PSL is an important role play in economic development of the country. As the name indicates Priority means preference over others the government have to give preference to some sectors in process to make the important of society. Financial help in form of relaxation of collateral and rate of interest and fixing certain percentage of overall credit are to be provided. In line with the objective, Reserve Bank of India (RBI) direct the other banks for providing a specified portion of the bank lending to selected specific sector. Priority Sector Lending is an important role given by the Reserve Bank of India (RBI) to the banks for providing a specified portion of the bank lending to few specific sectors like agriculture and agriculture related activities, micro and small enterprises, poor people for housing loans, education, export credit, social infrastructure, renewable energy and other weaker section PSL loans are relatively cheaper than market interest rate. RBI has modified Priority Sector Lending norms after the recommendations of the Internal Working Group in 2015. Changes in classification of the priority sectors and targets were also made as per the new norms. Previously, only public sector banks were ask to give loans to these sectors therefore, now even private sector banks and foreign banks have to give loan these sectors.