Latest report advocates for enhanced loan limits in housing, education, and renewable energy, alongside the integration of infrastructure and climate finance into PSL framework.
MUMBAI — State Bank of India (SBI) today released its latest Research Report (Issue #13, FY27), making a strong case for a comprehensive review of the Priority Sector Lending (PSL) guidelines. The report underscores that while the banking sector has consistently met the overall 40% PSL target since FY18—with provisional estimates for FY26 placing the achievement at 45% of Adjusted Net Bank Credit (ANBC)—the structural dynamics require significant adjustments to align with the Prime Minister’s 'Viksit Bharat 2047' vision.
According to the report, a deeper dissection of current data reveals that excluding Priority Sector Lending Certificates (PSLCs) and Rural Infrastructure Development Fund (RIDF) allocations, banks face an underlying challenge in meeting the 40% organic target. With the emergence of new economic paradigms such as ESG financing, SDG commitments, and the electric vehicle (EV) ecosystem, the report indicates that it is an opportune time to upgrade the decades-old financial inclusion framework established in 1972.
Key Recommendations for Loan Limit Enhancements
To prevent the exclusion of viable units due to outdated caps amidst rising operational and inflation costs, SBI Research has proposed a substantial upward revision across multiple sectors:
Renewable Energy: Elevate the commercial loan limit from ₹35 crore to ₹100 crore for power generators and public utilities, and increase individual household limits (rooftop solar) to ₹2 crore.
Housing Loans: Revise limits to ₹1 crore in metropolitan centers and ₹75 lakh in other centers, while including intermediated housing loans under the PSL umbrella.
Education Loans: Increase the individual credit limit from ₹25 lakh to ₹50 lakh to accommodate the rising cost of professional, private, and foreign education.
Social Infrastructure: Enhance the limits significantly to ₹15 crore for schools and ₹25 crore for healthcare facilities across all cities.
Food & Agro Processing and Agri-Infra: Raise aggregate limits per borrower from the banking system to ₹500 crore (with an individual bank limit of ₹200 crore) to incentivize larger scale technology adoption.
Inclusion of Infrastructure and Emerging Sectors
The report notes that achieving the 2047 macroeconomic vision requires massive capital in infrastructure, which faces long-term resource constraints due to an underdeveloped bond market. SBI Research recommends that all bank-funded infrastructure loans should either be granted priority sector status or be exempted from the ANBC denominator calculation.
Furthermore, the report suggests introducing a dedicated 'Climate Sustainability Finance' head under PSL to encourage investments in green, ESG, and sovereign bonds. It also recommends including all micro-enterprises involved in EV manufacturing under the 7.5% MSME sub-target, and allowing loans under all Government Sponsored Schemes (such as PMMY, PM SVANidhi, PM Vishwakarma, and PMEGP) to qualify as weaker section lending irrespective of the immediate presence of a Udyam Registration Number (URN).
Structural Reforms in Rural Infrastructure Development Fund (RIDF)
A core finding of the report's cost-benefit analysis highlights that banks currently find it significantly more profitable to purchase PSLCs rather than investing in the RIDF due to the latter's capital costs and markdowns. To address this structural imbalance, the report recommends that deposits in the NABARD-managed RIDF should be exempted from risk weight and CRAR calculations, effectively treating them as sovereign deposits akin to statutory liquidity ratio (SLR) requirements.