RBI/FIDD/2026-27/XX
FIDD.CO.PSD.BC./04.09.001/2026-27

----------, 2026

Reserve Bank of India (Commercial Banks – Priority Sector Lending – Targets and Classification) Directions, 2026

In exercise of the powers conferred by Sections 21 and 35A read with Section 56 of the Banking Regulation Act, 1949, the Reserve Bank of India, being satisfied that it is necessary and expedient in the public interest so to do, hereby, issues the Directions hereinafter specified.

Chapter I: Preliminary

A. Short Title and Commencement

1. These Directions shall be called the Reserve Bank of India (Commercial Banks – Priority Sector Lending – Targets and Classification) Directions, 2026.

2. These Directions shall come into force with immediate effect.

B. Objective

3. The extant Directions are issued with a view to delineating a framework for ensuring adequate flow of credit from the banking system to the sectors of the economy which are crucial for their contribution to socio-economic development, with focus on specific segments whose credit needs remain underserved despite being credit worthy.

C. Applicability

4. The provisions of these Directions shall be applicable to Commercial Banks (hereinafter collectively referred to as 'banks' and individually as a 'bank').

For the purpose of these Directions, ‘Commercial Banks’ means all banking companies (other than Small Finance Banks, Payment Banks, Regional Rural Banks and Local Area Banks), corresponding new banks, and the State Bank of India, as defined respectively under clauses (c), (da), and (nc) of Section 5 of the Banking Regulation Act, 1949.

D. Definitions/Clarifications

5. In these Directions, unless the context otherwise requires, the terms herein shall bear the meanings assigned to them below:

(i) Allied activities i.e. activities allied to agriculture shall include dairy, fisheries, animal husbandry, poultry, bee-keeping, sericulture and similar activities.

(ii) Non-Corporate Farmers (NCF) shall include individual farmers including Small and Marginal Farmers (SMFs) (as per paragraph 23 of this MD), proprietorship firms of farmers directly engaged in agriculture and allied activities, and Self-Help Groups (SHGs) or Joint Liability Groups (JLGs) i.e., group of individual farmers, provided banks maintain disaggregated data of such loans.

(iii) On-lending shall mean loans sanctioned by banks to eligible intermediaries for onward lending. Such loans, extended for creation of priority sector assets and which remain deployed in such assets, will be eligible for classification under PSL.

6. All other expressions, unless defined herein, shall have the same meaning as has been assigned to them under the Banking Regulation Act, 1949 or the Reserve Bank of India Act, 1934 or any statutory modification or re-enactment thereto or as used in commercial parlance, as the case may be.

7. All loans categorised as Priority Sector Lending (PSL) under the erstwhile Master Directions on PSL shall continue to be eligible for such categorisation till maturity.

Chapter II: Categories and Targets Under Priority Sector

A. Categories under Priority Sector

8. The categories under priority sector are as follows:

1. Agriculture

2. Micro, Small and Medium Enterprises

3. Exports

4. Education

5. Housing

6. Social Infrastructure

7. Renewable Energy

8. Others

The details of eligible activities under the above categories are specified in Chapter III.

9. For the purpose of priority sector lending, ANBC shall be computed as follows:

Explanation 1: The bills purchased/ discounted/ negotiated (payment to beneficiary not under reserve) under LC may be treated as interbank exposure only for the limited purpose of computing exposure and capital requirements. They shall not be excluded from the computation of ‘bank credit in India’ [as prescribed in item No.VI of Form 'A’ under Section 42(2) of the RBI Act, 1934] which allows for exclusion of interbank advance. While exposure may be to the LC issuing bank, the bills purchased/discounted amount to bank credit to its borrower constituent. If this advance is eligible for priority sector classification, the bank can classify it as PSL. Banks have to take note of the above aspect while reporting Net Bank Credit in India as well as while computing the Adjusted Net Bank Credit for PSL targets and achievement.

Explanation 2: While calculating Net Bank Credit (for the purpose of priority sector computation only) as above, banks shall not deduct / net any amount like provisions, accrued interest, etc. from NBC. If banks subtract prudential write off at Corporate/Head Office level, it shall be ensured that the credit to priority sector and all sub-sectors so written off shall also be subtracted category-wise from priority sector target and sub-target achievement. Investments or any other items which are treated as eligible for classification under priority sector target/sub-target achievement, shall also form part of Adjusted Net Bank Credit.

Explanation 3: Net PSLCs outstanding in Item IV in the table above shall mean the aggregate value of PSLCs purchased minus PSLCs sold.

10. For the purpose of calculation of Credit Equivalent of Off-Balance Sheet Exposures (CEOBSE), banks shall be guided by the Reserve Bank of India (Commercial Banks - Concentration Risk Management) Directions, 2025.

Explanation: Contingent liabilities/off-balance sheet items do not form part of priority sector achievement. However, foreign banks with less than 20 branches have an option to reckon the CEOBSE extended to borrowers for eligible priority sector activities for achievement of priority sector target, subject to the condition that the CEOBSE (both priority sector and non-priority sector excluding interbank exposure) shall be added to the ANBC in the denominator for computation of PSL targets. Further, off-balance sheet interbank exposures are excluded for computing CEOBSE for the priority sector targets.

11. All banks shall adhere to the respective licencing and operating guidelines issued by the Department of Regulation, RBI as updated from time to time.

12. The targets and sub-targets set under priority sector lending, to be computed on the basis of the ANBC/CEOBSE as applicable as on the corresponding date of the preceding year, are as below:

D. Adjustments for weights in PSL Achievement

14. The banks shall report the actual outstanding amount in Quarterly Priority Sector Advances (QPSA) returns. Adjustments for weights to incremental PSL credit will be done by RBI, based on reporting of district wise credit flow in the District QPSA (D-QPSA) return. Foreign banks (including Wholly Owned Subsidiaries) would be exempted from adjustments of weights in PSL achievement due to their currently limited area of operation/catering to a niche segment.

Explanation 1: For mapping a credit facility to a particular district, the ‘place of utilization of credit’ shall be the qualifying criteria. Further, for calculating district-wise incremental credit for assigning weights, only organic credit i.e., credit directly disbursed by the bank with borrower/beneficiary-level details maintained in its books — shall be considered. Credit disbursed through inorganic routes viz., investments in securitised assets, transfer of assets through direct assignment/outright purchase, IBPCs, PSLCs and, loans to MFIs/NBFCs/HFCs etc., for on-lending, shall not be considered for incremental weights.

Explanation 2: In the event of a decline or negative incremental credit, the weighted incremental credit shall be treated as zero. Based on the methodology detailed below, banks are expected to monitor their own PSL achievement during the year considering the prescription of differential weights for credit in identified districts, for the purpose of trading in PSLCs.

Chapter III: Categories under Priority Sector – Eligibility Criteria

A. Agriculture

15. The lending to agriculture sector will include Farm Credit (Agriculture and Allied Activities), lending for Agriculture Infrastructure and Ancillary Activities.

A.1 Farm Credit- Individual farmers

16. This category comprises of loans to individual farmers [including Self Help Groups (SHGs) or Joint Liability Groups (JLGs) i.e., groups of individual farmers, provided banks maintain disaggregated data of such loans] and proprietorship firms of farmers, directly engaged in agriculture and allied activities. Such loans will include:

(1) Crop loans including loans for traditional/non-traditional plantations, horticulture and allied activities

(2) Medium and long-term loans for agriculture and allied activities (e.g. purchase of agricultural implements and machinery and developmental loans for allied activities)

(3) Loans for pre and post-harvest activities viz., spraying, harvesting, grading and transporting of own farm produce

(4) Loans to distressed farmers indebted to non-institutional lenders

(5) Loans under the Kisan Credit Card Scheme

(6) Loans to small and marginal farmers (SMFs) for purchase of land for agricultural purposes

(7) Loans against pledge/hypothecation of agricultural produce (including warehouse receipts) for a period not exceeding 12 months subject to a limit up to ₹90 lakh against Negotiable Warehouse Receipt (NWRs)/Electronic Negotiable Warehouse Receipt (eNWRs) and up to ₹60 lakh against warehouse receipts other than NWRs/eNWRs

(8) Loans to farmers for installation of stand-alone solar agriculture pumps and for solarisation of grid connected agriculture pumps

(9) Loans to farmers for installation of solar power plants on barren/fallow land or in stilt fashion on agriculture land owned by farmer

A.2 Farm Credit - Corporate farmers, Farmer Producer Organisations/ Companies (FPOs)/(FPCs) of Individual Farmers, Partnership firms and Co-operatives of farmers engaged in Agriculture and Allied Activities

17. Loans for the following activities, subject to an aggregate limit of ₹4 crore per borrowing entity, will be eligible:

(1) Crop loans to farmers which will include traditional/non-traditional plantations and horticulture and loans for allied activities

(2) Medium and long-term loans for agriculture and allied activities (e.g., purchase of agricultural implements, technological solutions, machinery and developmental loans for allied activities)

(3) Loans for pre and post-harvest activities viz., spraying, harvesting, grading and transporting of their own farm produce

18. Loans up to ₹4 crore against pledge/hypothecation of agricultural produce (including warehouse receipts) for a period not exceeding 12 months against NWRs/eNWRs and up to ₹2.5 crore against warehouse receipts other than NWRs/eNWRs

19. Loans up to ₹10 crore per borrowing entity to FPOs/FPCs undertaking farming with assured marketing of their produce at a pre-determined price

20. Loans up to ₹10 crore for purchase of the produce of members directly engaged in agriculture and allied activities

A.3 Agriculture Infrastructure

21. Loans for agriculture infrastructure will be subject to an aggregate sanctioned limit of ₹100 crore per borrower from the banking system. An indicative list of activities is as below:

(1) Loans for construction of storage facilities (warehouse, market yards, godowns and silos) including cold storage units/cold storage chains designed to store agriculture produce/products, irrespective of their location

(2) Loans for soil conservation and watershed development

(3) Loans for plant tissue culture and agri-biotechnology, seed production, production of bio-pesticides, bio-fertilizer, and vermi composting

(4) Loans for construction of oil extraction/processing units for production of bio-fuels, their storage and distribution infrastructure along with loans to entrepreneurs for setting up Compressed Bio Gas (CBG) plants

Explanation: The aggregate sanctioned limit of ₹100 crore per borrower for Agriculture Infrastructure shall be computed on a facility-wise basis and shall be exclusive of borrower’s other PSL/non-PSL exposures. For the loans to qualify as PSL, banks must assess and sanction separate limits specifically for Agriculture Infrastructure purposes. Banks shall, at the time of sanction/review, obtain a borrower declaration disclosing existing loans from other banks for the same activity and also ascertain the aggregate exposure position independently as per their internal policy, to ensure that the aggregate limit of ₹100 crore at the banking system level, is adhered to.

Note: For the limited purpose of this explanation, the meaning of ‘banks’ shall include scheduled commercial banks, small finance banks, urban co-operative banks, local area banks and regional rural banks.

A.4 Ancillary Services

22. The following shall be eligible to be classified in this category:

(1) Loans for setting up of Agri-clinics and Agri-business centres

(2) Loans to Custom Service Units managed by individuals, institutions or organizations who maintain a fleet of tractors, bulldozers, well-boring equipment, threshers, combines, etc., and undertake farm work for farmers on contract basis

(3) Loans to Primary Agricultural Credit Societies (PACS), Farmers’ Service Societies (FSS) and Large-sized Adivasi Multi-Purpose Societies (LAMPS) for on-lending to agriculture

(4) Loans sanctioned by banks to MFIs for on-lending to agriculture sector as per the conditions specified in section D of Chapter V of these Master Directions

(5) Loans sanctioned by banks to registered NBFCs (other than MFIs) as per conditions specified in sections E and I of Chapter V of these Master Directions

(6) Loans up to ₹50 crore to Start-ups, as defined by Ministry of Commerce and Industry, Govt. of India, that are engaged in agriculture and allied services

(7) Loans for Food and Agro-processing up to an aggregate sanctioned limit of ₹100 crore per borrower from the banking system (eligible activities as given in Annex II)

(8) Outstanding deposits with NABARD on account of priority sector shortfall. These outstanding deposits shall also be reckoned for the achievement of overall PSL target.

Explanation 1: The aggregate sanctioned limit of ₹100 crore per borrower for Food and Agro processing activities shall be computed on a facility-wise basis and shall be exclusive of borrower’s other PSL/non-PSL exposures. For the loans to qualify as PSL, banks must assess and sanction limits specifically for Food & Agro Processing purposes. Banks shall, at the time of sanction/review, obtain a borrower declaration disclosing existing loans from other banks for the same activity and also ascertain the aggregate exposure position independently as per their internal policy, to ensure that the aggregate limit of ₹100 crore at the banking system level, is adhered to.

Note: For the limited purpose of this explanation, the meaning of ‘banks’ shall include scheduled commercial banks, small finance banks, urban co-operative banks, local area banks and regional rural banks.

Explanation 2 [paragraph 22 (7)]: As per Annex-II, transportation is an eligible activity under indicative list of permissible activities under Food Processing Sector. However, loans to transporters for purchasing commercial vehicles shall qualify under “Food & Agro-processing” category, only if the vehicles are used exclusively for transportation of food and agro-processed products or are types of vehicles specifically used for “Food & Agro-processing” e.g. cold storage trucks, vans etc. If the commercial vehicle is also used for transportation of products other than those related to food & agro processing, the loans shall not be eligible for classification under ‘Food & Agro-processing’ category. Such loans may, however, be classified under MSME, if the borrower is eligible for classification as MSME in terms of paragraph 26 of extant Master Direction.

23. For the purpose of computation of achievement of the sub-target, SMFs will include the following:

(1) Farmers with landholding of up to 1 hectare (Marginal Farmers)

(2) Farmers with a landholding of more than 1 hectare and up to 2 hectares (Small Farmers)

(3) Landless agricultural labourers, tenant farmers, oral lessees and share-croppers whose share of landholding is within the limits prescribed for SMFs

(4) Self Help Groups (SHGs) or Joint Liability Groups (JLGs), i.e., groups of individual SMFs directly engaged in agriculture and allied activities, provided banks maintain disaggregated data of such loans

(5) Loans up to ₹2.5 lakh to individuals solely engaged in allied activities without any accompanying land holding criteria

(6) Loans to FPOs/FPCs of individual farmers and co-operatives of farmers directly engaged in agriculture and allied activities where the land-holding share of SMFs is not less than 75 per cent, subject to loan limits prescribed in Section A.2 of Chapter III.

Explanation: In case of loans to partnership firms/ companies where the partners/directors hold agricultural land upto 2 hectares, the same shall not be eligible to be categorized under SMF.

A.6 Lending by banks to NBFCs and MFIs for on-lending in agriculture

24. Bank credit extended to registered NBFC-MFIs and other MFIs (Societies, Trusts etc.) for on-lending to individuals and also to members of SHGs/JLGs shall be eligible for categorisation as priority sector advances under respective categories of agriculture provided the MFIs are members of RBI recognised SRO for the sector and conditions specified in section D of Chapter V of these Master Directions are met.

25. Bank credit to registered NBFCs (other than MFIs) towards on-lending for ‘term lending’ component under agriculture will be eligible for categorisation as priority sector advances up to ₹10 lakh per borrower subject to conditions specified in sections E and I of Chapter V of these Master Directions.

B. Micro, Small and Medium Enterprises (MSMEs)

26. ‘Micro, Small and Medium Enterprises’ mean the enterprises as defined in the MSMED Act, 2006 as amended from time to time.

27. The above enterprises are required to register online on the Udyam Registration portal and obtain ‘Udyam Registration Certificate’. For PSL purposes banks shall be guided by the classification recorded in the Udyam Registration Certificate (URC).

28. Retail and Wholesale trade are included as MSMEs for the limited purpose of priority sector lending classification and are allowed to be registered on Udyam Registration Portal.

29. The certificate issued on Udyam Assist Portal (UAP) to Informal Micro Enterprises (IMEs) shall be treated at par with Udyam Registration Certificate for the purpose of availing Priority Sector Lending benefits. IMEs with an Udyam Assist Certificate shall be treated as micro enterprises for the purpose of PSL classification.

30. All bank loans to MSMEs shall qualify for classification under priority sector lending.

31. Loans to Start-ups, as defined by Ministry of Commerce and Industry, Govt. of India, that conform to the definition of MSME, shall also be eligible to be classified under this category.

B.1 Factoring Transactions

33. Factoring transactions pertaining to MSMEs taking place through the Trade Receivables Discounting System (TReDS) shall also be eligible for classification under priority sector.

B.2 Other Loans eligible to be classified under PSL in the MSME category

34. These include:

(1) All loans to units in the Khadi and Village Industries sector, which shall be categorised as lending to micro enterprises.

(2) Loans to entities involved in assisting the decentralized sector in the supply of inputs and marketing of output of artisans, village and cottage industries.

(3) Loans to co-operatives of producers in the decentralized sector viz., artisans, village and cottage industries.

(4) Loans by banks to NBFC-MFIs and other MFIs (Societies, Trusts, etc.) which are members of RBI recognised SRO for the sector, for on-lending to the MSME sector as per the conditions specified in Section D of Chapter VI of these Master Directions.

(5) Loans to registered NBFCs (other than MFIs) for on-lending to micro and small enterprises up to ₹20 lakh per borrower as per conditions specified in sections E and I of Chapter V of these Master Directions.

(6) Overdraft to Pradhan Mantri Jan-Dhan Yojana (PMJDY) account holders as per limits and conditions prescribed by Department of Financial Services, Ministry of Finance from time to time, which shall be categorised as lending to Micro Enterprises.

(7) Outstanding deposits kept with SIDBI and MUDRA Ltd. on account of priority sector shortfall shall also be reckoned for the achievement of overall PSL target.

C. Exports

35. Export credit includes pre-shipment and post-shipment export credit (excluding off-balance sheet items) as defined in Reserve Bank of India (Commercial Banks – Credit Facilities) Directions, 2025.

36. Export credit to agriculture and MSMEs shall be eligible for classification as PSL in the respective categories and subject to the aggregate limits mentioned therein.

37. Export Credit (other than that classified under agriculture and MSME) shall be eligible for classification as priority sector lending as per the following table:

D. Education

38. Loans to individuals for educational purposes, including vocational courses, not exceeding ₹25 lakh will be considered as eligible for priority sector classification.

Explanation: While the sanctioned limit of an education loan shall in no case exceed ₹25 lakh for the loan to qualify as PSL, the entire outstanding amount of the loan - even if it exceeds the sanctioned limit for reasons such as moratorium on repayment during the study period - shall be eligible for classification under PSL.

E. Housing

39. Bank loans to Housing sector as per limits prescribed below are eligible for priority sector classification:

(1) Loans to individuals for purchase/construction of a dwelling unit per family subject to the following limits:

(2) Housing loans to banks’ own employees will not be eligible for classification under the priority sector, irrespective of whether they are extended on commercial terms or at subsidised rates.

(3) Housing loans which are backed by long term bonds issued in terms of Reserve Bank of India (Commercial Banks - Resource Raising Norms) Directions, 2025 (as updated from time to time) shall not be classified as PSL, as the eligible bonds are exempted in the computation of Adjusted Net Bank Credit (ANBC).

40. Loans for repairs to damaged dwelling units shall be eligible for priority sector classification subject to the following limits:

Explanation 1: For the loans to be eligible to be classified under the ‘Housing’ category of PSL, they should satisfy both the 'loan limit’ and the ‘maximum cost of dwelling unit’ criteria.

Explanation 2: Banks may refer to the population at the level of ‘Urban Agglomerations’ (U.A.s)/ Towns as given in the Table “A-04” of the Census 2011 for determining adherence to the population-based classifications. For housing loans to properties situated in villages/rural areas (which are not part of the Table A-04 of the Census 2011), the loan limits as per “Centres with population below 10 lakh” may be adhered to.

41. Bank loans to any governmental agency for construction of dwelling units or for slum clearance and rehabilitation of slum dwellers subject to dwelling units with carpet area of not more than 60 sq.m.

42. Bank loans for affordable housing projects using at least 50 percent of FAR/FSI for dwelling units with carpet area of not more than 60 sq.m.

43. Outstanding deposits placed with NHB on account of priority sector shortfall shall also be reckoned for the achievement of overall PSL target.

F. Social Infrastructure

44. Bank loans to social infrastructure sector as per limits prescribed below are eligible for priority sector classification.

(1) Loans up to a limit of ₹8 crore per borrower for setting up schools, drinking water facilities and sanitation facilities including construction/refurbishment of household toilets and water improvements at household level, etc.

(2) Loans up to a limit of ₹12 crore per borrower for building health care facilities in Tier 2 to Tier 6 centres, as per the classification in Reserve Bank of India (Commercial Banks - Branch Authorisation) Directions, 2025.

45. Loans to MFIs extended for on-lending to individuals and also to members of SHGs/JLGs for water and sanitation facilities subject to the criteria laid down in section D of Chapter V of these Master Directions.

G. Renewable Energy

46. Bank loans up to a limit of ₹35 crore to borrowers for renewable energy-based power generators and for renewable energy based public utilities, viz., street lighting systems, remote village electrification etc., will be eligible for priority sector classification. For individual households, the loan limit will be ₹10 lakh per borrower.

H. Others

47. The following loans up to the prescribed limits are eligible for priority sector classification:

(1) Microfinance loans provided directly by banks to individuals and individual members of SHGs/JLGs satisfying the criteria as prescribed in Reserve Bank of India (Commercial Banks – Credit Facilities) Directions, 2025

(2) Loans not exceeding ₹2.00 lakh provided by banks to SHG/JLG for activities other than agriculture or MSME, viz., loans for meeting social needs, construction or repair of house, construction of toilets or any viable common activity started by SHGs

(3) Loans to distressed persons (other than distressed farmers indebted to non-institutional lenders) not exceeding ₹1.00 lakh per borrower to prepay their debt to non-institutional lenders

(4) Loans sanctioned to State Sponsored Organisations for Scheduled Castes/ Scheduled Tribes for the specific purpose of purchase and supply of inputs and/or the marketing of the outputs of the beneficiaries of these organisations

(5) Loans up to ₹50 crore to Start-ups, as per definition of Ministry of Commerce and Industry, Govt. of India, that are engaged in activities other than agriculture or MSME

I. Weaker Sections

48. Priority sector loans to the following borrowers will be considered as lending to Weaker Sections (overlapping category):

Explanation 1: For classification under ‘Weaker Sections’, the loans should first be eligible for classification under any of the eight PSL categories as per underlying activity.

Explanation 2: (items iv and xiii) Customer declaration in the application form shall suffice for classifying credit facilities to Minorities/SCs/STs as such. In the case of a partnership firm, if the majority of the partners belong to one or the other of the specified minority communities, advances granted to such partnership firms may be treated as advances granted to minority communities. Further, if the majority beneficial ownership in a partnership firm belongs to the minority community, then such lending can be classified as advances to the specified communities. A company has a separate legal entity and hence advances granted to it cannot be classified as advances to the specified minority communities.

49. Overdraft availed by PMJDY account holders as per limits and conditions prescribed by Department of Financial Services, Ministry of Finance from time to time may be classified under loans to Weaker Sections.

50. In States, where one of the minority communities notified is, in fact, in majority, item (xiii) will cover only the other notified minorities. These States/Union Territories are Punjab, Meghalaya, Mizoram, Nagaland, Lakshadweep and Jammu & Kashmir.

Chapter IV: Priority Sector Lending Certificates

A. Introduction and Purpose

51. The PSLC mechanism enables banks to achieve priority sector lending targets and sub-targets, in the event of shortfall, by purchasing notional fulfilment from banks with surplus PSL achievement, without any transfer of credit risk or underlying loan assets. The seller sells the fulfilment of priority sector obligations, and the buyer purchases the same. The scheme incentivises surplus banks; thereby enhancing lending to the categories under priority sector.

52. The net nominal value of the PSLCs issued and purchased shall be eligible for classification under the respective priority sector categories provided the underlying assets originated by banks are eligible to be classified as priority sector advances and fulfil the Reserve Bank of India guidelines on priority sector lending certificates.

Note: For the limited purpose of Chapter IV, the meaning of ‘banks’ shall include scheduled commercial banks, small finance banks, urban co-operative banks, local area banks and regional rural banks.

B. Eligible sellers/buyers

53. Banks who have originated PSL eligible category loans, shall be eligible to sell PSLCs, subject to such regulations as may be issued by the Reserve Bank.

54. Banks shall obtain registration for PSLC trading by submitting their applications through the PRAVAAH portal (PRAVAAH).

C. Types of PSLCs

55. Banks may issue the following four categories of PSLCs: PSLC–Agriculture, PSLC–SF/MF, PSLC–Micro Enterprises, and PSLC–General. Each category of certificates shall represent specific types of loans and count towards the achievement of specific targets/sub-targets as indicated hereunder:

56. Thus, a bank having shortfall in achievement of any sub-target (e.g. SF/MF, Micro), will have to buy PSLCs counting towards that sub-target. However, a bank having shortfall in achievement of the overall target only, may buy any type of PSLCs.

Explanation 1: 'Export Credit' shall form a part of underlying assets against the PSLC - General. However, any bank issuing PSLC-General against 'Export Credit' shall ensure that the underlying 'Export Credit' portfolio is eligible for priority sector classification as per the criteria set for domestic commercial banks.

Explanation 2: Foreign banks with less than 20 branches are not allowed to buy PSLC-General for achieving their 8 percent target of lending to sectors other than exports. However, such banks are allowed to buy PSLC-Agriculture, PSLC-Micro Enterprises and PSLC-SF/MF for the same.

D. Issuance, Tenor, Lot Size, Fee and Settlement

57. Normally, PSLCs will be issued against the underlying assets. However, with the objective of developing a strong and vibrant market for PSLCs, a bank is permitted to issue PSLCs upto 50 percent of previous year’s PSL achievement without having the underlying in its books. However, as on the reporting date, the bank must have met the priority sector target by way of the sum of outstanding priority sector lending portfolio and net of PSLCs issued and purchased. To the extent of shortfall in the achievement of target, banks may be required to invest in RIDF/other funds as hitherto.

Explanation: In case RBI, at a later date, as part of its supervisory process, de-classifies the underlying assets which had already been traded by the bank as PSLCs, from eligibility for PSL classification, such misclassification, shall be reduced from the achievement of PSLC seller bank only. There will be no reduction for the PSLC buyer, even if the underlying asset of the traded PSLC gets misclassified on account of the above.

58. There will be no transfer of credit risk on the underlying as there is no transfer of tangible assets or cash flow.

59. All PSLCs shall be valid till the end of the FY i.e. March 31st and expire on the next day i.e. April 1st.

60. Trading of PSLC’s and settlement of funds shall be through the e-Kuber portal of RBI.

61. PSLCs will be traded in standard lot sizes of ₹ 25 lakh and multiples thereof.

62. The buyer shall pay a fee to the seller which will be market determined.

E. Computation of PSL achievement

63. A bank’s PSL achievement would be computed as the sum of outstanding priority sector loans, and the net nominal value of the PSLCs issued and purchased. Such computation shall be done separately for the sub targets applicable. The net position of PSLCs (PSLC Buy – PSLC Sell) has to be considered while reporting for the quarterly and annual priority sector returns.

F. Accounting and Disclosures

64. The nominal value of PSLC would represent the equivalent of the PSL that would get deducted from the PSL portfolio of the seller and added to the PSL portfolio of the buyer.

65. The fee paid for purchase of the PSLC would be treated as an ‘Expense’ and the fee received for the sale of PSLCs would be treated as ‘Miscellaneous Income’.

66. Both seller and buyer shall report the amount of PSLCs (category-wise) sold and purchased during the year in the ‘Disclosures to the Balance Sheet’.

Illustration

1. Bank A may sell PSLCs with a nominal value of ₹100 crore to Bank B on July 15, 2025. Bank B will reckon ₹100 crore towards its priority sector achievement as on the reporting dates of September 30, 2025, December 31, 2025 & March 31, 2026, while Bank A will subtract the same from its achievement figures for the respective reporting dates. The PSLCs will expire on April 01, 2026.

2. Bank C may buy ₹100 crore PSLCs on March 30, 2026, from Bank D. Bank D will subtract ₹100 crore from its PSL reporting on March 31, 2026, while Bank C will reckon the same towards its achievement. The PSLCs will expire on April 01, 2026.

G. Operational Provisions (e-Kuber portal)

67. The PSLC market operates on all days except Saturdays, Sundays and holidays declared under The Negotiable Instruments Act, 1881 by the Government of Maharashtra. The normal trading hours shall be from 10 AM to 4:00 PM.

68. The trading platform matches buy and sell offers by following the rule of Lowest Sale offer to the Buy offer and then within that on FIFO basis.

Illustration

A buyer offered to pay 2 percent premium for a particular PSLC type and the same is available at 1.5 percent, 1.8 percent and 2 percent. The portal will first match with the sale deal at 1.5 percent and for any leftover units, it will then match with the sale offers of 1.8 percent and then 2 percent in that order, provided the buy offer is first in the queue (based on the timing of the placement of the buy offer).

69. The order matching shall be done on anonymous basis through the portal and the buyer/seller cannot select the counterparty. Partial matching shall happen depending on the matching of premium and availability of category-wise PSLC lots for sale and purchase.

70. There shall be real time settlement of the matched premium. Accordingly, the respective current accounts of the participating banks with RBI will be debited/ credited to the extent of the matched premium.

71. No transaction charges/fees are applicable for usage of the PSLC module. The tax implications on account of trading in PSLCs may be determined by banks in accordance with the applicable tax laws.

Chapter V: Supplementary avenues for PSL

72. Investments by banks in ‘Securitisation Notes’, representing loans to various priority sector categories, except 'others' category, are eligible for classification under the respective categories depending on the underlying assets, subject to the following conditions:

(1) The assets are originated by banks and financial institutions and are eligible to be classified as priority sector advances prior to securitisation and fulfil the provisions of Reserve Bank of India (Securitisation Transactions) Directions, 2025, as applicable to various entities.

(2) Investment by banks in securitisation notes with loans against gold jewellery originated by NBFCs as underlying, are not eligible for priority sector status.

73. To ascertain priority sector status of the underlying portfolio, banks may rely on a combination of any external auditors’ certification provided by the originating entity and conduct of sample check by their own staff or by an auditor appointed for the purpose. This may be specified in bank’s internal policy.

Note: For the limited purpose of paragraph 72 (1), the meaning of ‘banks’ shall include scheduled commercial banks and small finance banks.

B. Transfer of Assets through Direct Assignment/Outright purchase

74. Assignment/outright purchase of pool of assets by banks representing loans under various priority sector categories, except the ‘others’ category, will be eligible for classification under the respective categories, subject to the following conditions:

(1) The assets are originated by banks and financial institutions and are eligible to be classified as priority sector advances prior to the purchase and fulfil the provisions of the Reserve Bank of India (Transfer and Distribution of Credit Risk) Directions, 2025, as applicable to various entities.

(2) Banks shall report the outstanding amount actually disbursed to priority sector borrowers and not the premium embedded amount paid to the seller.

(3) Loans against gold jewellery acquired by banks from NBFCs are not eligible for priority sector status.

Note: For the limited purpose of paragraph 74 (1), the meaning of ‘banks’ shall include scheduled commercial banks and small finance banks.

C. Inter Bank Participation Certificates (IBPCs)

75. IBPCs bought by banks, on a risk sharing basis, are eligible for classification under the respective priority sector categories, provided the underlying assets are eligible to be classified under the respective categories and the banks fulfil the relevant provisions of Reserve Bank of India (Commercial Banks – Transfer and Distribution of Credit Risk) Directions, 2025.

76. IBPCs bought by banks on risk sharing basis relating to ‘Export Credit’ as per paragraph 35, 36 and 37 shall be classified from purchasing bank’s perspective for priority sector categorization. However, in such a scenario, the issuing bank shall certify that the underlying asset is ‘Export Credit’, in addition to the due diligence required to be undertaken by the issuing and the purchasing banks as per guidelines in this regard.

Note: For the limited purpose of paragraph 76, the ‘issuing bank’ shall include scheduled commercial banks, small finance banks, and regional rural banks.

D. Bank loans to MFIs (NBFC-MFIs, Societies, Trusts, etc.) for On-Lending

77. Loans disbursed by banks to registered NBFC-MFIs and other MFIs (Societies, Trusts, etc.) shall be eligible for categorisation as priority sector advances under respective categories viz., Agriculture, MSME, Social Infrastructure and Others, provided:

1) the NBFC-MFIs adhere to the conditions prescribed in Reserve Bank of India (Non-Banking Financial Companies – Microfinance Institution) Directions, 2025;

2) the other MFIs (Societies, Trusts etc.) are members of RBI recognised Self-Regulatory Organisation (SRO) for the sector;

3) the loans by banks are extended for the purpose of on-lending to individual borrowers and/or to members of SHGs/JLGs and;

4) banks obtain external auditors’ certificates from MFIs confirming that on-lending benefit in respect of these loans has not been claimed from any other bank

E. Bank loans to NBFCs for On-Lending

78. Bank credit to registered NBFCs (other than MFIs) for on-lending will be eligible for classification as priority sector lending under the respective categories subject to the following conditions:

(1) Agriculture: Up to ₹10 lakh per borrower in respect of ‘term lending’ component under Agriculture

(2) Micro & Small enterprises: Up to ₹20 lakh per borrower

(3) provided banks maintain disaggregated data of such loans in the portfolio.

(4) Banks obtain external auditors’ certificates from the NBFCs confirming that on-lending benefit in respect of such loans has not been claimed from any other bank.

F. Bank loans to HFCs for On-Lending

79. Bank credit to Housing Finance Companies (HFCs), approved by NHB for their refinance, for on-lending for the purpose of purchase/construction/reconstruction of individual dwelling units or for slum clearance and rehabilitation of slum dwellers, will be eligible for classification as PSL under Housing category subject to the following conditions:

(1) an aggregate loan limit of ₹20 lakh per borrower.

(2) banks maintain necessary borrower-wise details of the underlying portfolio

(3) banks obtain external auditors’ certificates from the HFCs, confirming that on-lending benefit in respect of such loans has not been claimed from any other bank.

G. Bank loans to NCDC for On-Lending

80. Bank credit to National Co-operative Development Corporation (NCDC) for on-lending to co-operative societies for purposes and activities as laid down in this Master Direction will be eligible for classification as priority sector lending under the respective categories. This is subject to NCDC furnishing quarterly certificates by a Comptroller and Auditor General (CAG) empanelled chartered accountant firm, to the lending banks, confirming that the bank credit has been utilized for extending loans to co-operative societies for PSL eligible purposes and that on-lending benefit in respect of such loans has not been claimed from any other bank.

Note: The provisions of paragraph 80 are applicable to loans sanctioned by banks to NCDC after January 19, 2026.

H. PSL classification of on-lending

81. Banks shall adopt a uniform methodology for PSL classification of on-lending as follows:

(1) Classification under PSL: Classification of on-lending to eligible entities under the respective categories of PSL is permitted only when the entity i.e., NBFC, HFC etc., has disbursed the Priority Sector Loans to the ultimate beneficiary after receiving the funds from the bank and the funds remain deployed in PSL assets. Also, they must put in place a suitable process to flag such loan(s) in their systems to enable internal/statutory auditors as well as RBI supervisors (in case of NBFCs) to verify the same.

(2) Information sharing: The banks may devise internal control mechanisms to ensure that the portfolio under on-lending is PSL compliant. The following information/record, at the very minimum, should be collected by the bank from the eligible entities i.e., NBFCs, HFCs, etc.: name of the beneficiary, amount sanctioned, loan amount outstanding, loan tenure, disbursement date, category of PSL.

I. Cap on On-Lending

82. Bank credit to NBFCs (including HFCs) and NCDC for on-lending as applicable in paragraph 78, 79 and 80 above, will be eligible for PSL classification up to an overall limit of five percent of individual bank’s average PSL achievement of the four quarters of the previous financial year. Banks shall determine adherence to the prescribed cap by averaging the eligible portfolio under on-lending mechanism across four quarters of the current financial year. In case of a newly licensed bank, the cap shall be applicable on an on-going basis during its first year of operations.

83. The prescribed cap is not applicable for bank lending to NBFC-MFIs and other MFIs (Societies, Trusts, etc.) which are members of RBI recognised ‘Self-Regulatory Organisation’ of the sector.

J. Co-lending

84. Banks are permitted to enter into co-lending arrangements for lending to priority sectors as per the guidelines issued vide Reserve Bank of India (Commercial Banks – Transfer and Distribution of Credit Risk) Directions, 2025. Loans extended as per circular FIDD.CO.Plan.BC.No.8/04.09.01/2020-21 dated November 5, 2020 on Co-lending by Banks and NBFCs to Priority Sector and as per circular No. FIDD.CO.Plan.BC.08/04.09.01/2018-19 dated September 21, 2018 on Co-origination of loans by Banks and NBFCs for lending to priority sector shall continue to be eligible for priority sector classification till repayment/ maturity, whichever is earlier.

K. Special Measures – PSL Treatment

85. To mitigate the financial impact of COVID-19 related disruptions, RBI had taken several policy measures to ease the flow of credit to needy segments. Priority sector classification shall continue to be available to outstanding credit extended under the measures specified below:

(i) In terms of press release: 2021-2022/177 dated May 7, 2021, an on-tap liquidity window of ₹50,000 crore with tenors of up to three years at the repo rate till March 31, 2022 was opened to boost provision of immediate liquidity for ramping up COVID-related healthcare infrastructure and services in the country. Banks were expected to create a COVID loan book under the scheme. Banks were advised to deliver these loans to borrowers directly or through intermediary financial entities regulated by the RBI. These loans will continue to be classified as priority sector lending till repayment or maturity, whichever is earlier. Banks which deployed their own resources without availing funds from the RBI under the scheme for lending to the specified segments mentioned above, are also eligible for the incentives stipulated as above.

(ii) In terms of press release: 2021-2022/323 dated June 4, 2021, a separate liquidity window of ₹15,000 crore with tenors of up to three years at the repo rate till March 31, 2022 was opened for certain contact-intensive sectors i.e., hotels and restaurants; tourism - travel agents, tour operators and adventure/heritage facilities; aviation ancillary services - ground handling and supply chain; and other services that include private bus operators, car repair services, rent-a-car service providers, event/conference organisers, spa clinics, and beauty parlours/saloons. Banks were expected to create a separate COVID loan book under the scheme. These loans will continue to be classified as priority sector lending till repayment or maturity, whichever is earlier. Banks which deployed their own resources without availing funds from the RBI under the scheme for lending to the specified segments mentioned above, were also eligible for this incentive.

Chapter VI: Miscellaneous

A. Monitoring of Priority Sector Lending Targets

86. To ensure continuous flow of credit to priority sectors, the compliance of banks will be monitored on a calendar quarter basis.

87. The data on priority sector advances shall be furnished by banks at quarterly and annual intervals as per the respective reporting format, within fifteen days and one month, respectively from the end of each quarter and financial year.

B. Non-achievement of Priority Sector Targets

88. Banks with shortfall in priority sector lending vis-à-vis the prescribed target/sub-targets shall be allocated amounts for contribution to funds maintained with NABARD/NHB/SIDBI/MUDRA Ltd., as decided by the Reserve Bank from time to time. Further, the terms and conditions of the funds shall be as decided by Reserve Bank of India.

Illustration:

Tables No.1 and 2 below illustrate the method followed for computation of shortfall/excess in priority sector target achievement at the end of the financial year

In the example given in Table - 1, the bank has overall shortfall of ₹2,063 crore at the end of the financial year. In Table – 2, the bank has overall excess of ₹2,293 crore at the end of the financial year.

The adjustments due to weightage on incremental credit in identified districts as per paragraph 13, will be as per the data submitted by banks in DQPSA.

The same method will be followed for calculating the achievement of quarterly and yearly priority sector sub-targets.

90. The interest rates payable to banks for their contribution to RIDF and other funds shall be as follows:

Further, in case of no shortfall in overall PSL target but shortfall in any sub-target, interest rate of Bank Rate minus 2 percentage points will apply.

91. The mis-classifications in PSL, if any, identified by the Reserve Bank’s Department of Supervision (DoS) will be adjusted from the PSL achievement of the relevant year, to which the amount of misclassification pertains, and shortfall will be allocated to various funds in the subsequent years.

92. Non-achievement of priority sector targets and sub-targets will be taken into account while granting regulatory clearances/approvals for various purposes.

C. Common guidelines for Priority Sector Loans

93. Banks shall also comply with the following common guidelines for all categories of priority sector advances.

(1) Rate of interest: The rates of interest charged on loans shall be in accordance with the Reserve Bank of India (Commercial Banks – Interest Rates on Advances) Directions, 2025.

(2) Service charges: No loan related charges (including guarantee fees of credit guarantee schemes), and ad hoc service charges/inspection charges shall be levied on priority sector loan accounts up to ₹50,000. In the case of eligible priority sector loans to SHGs/JLGs, this limit will be applicable per member and not to the group as a whole.

(3) Record of Receipt, Sanction/Rejection/Disbursement: Record shall be maintained by the bank of the date of receipt, sanction, disbursement, rejection with reasons thereof, etc.

(4) Acknowledgement of loan applications: Banks shall provide acknowledgement of receipt of applications for priority sector loans. Bank’s internal policy shall prescribe the time limit within which the bank communicates its decision in writing to the applicants.

(5) Banks shall ensure that loans categorised as priority sector lending are granted for approved purposes and the end use is monitored, by putting in place proper internal systems and controls.

Explanation 1: For example, in the case of crop loans under the agriculture/SMF category, banks shall maintain details such as the location of land under cultivation, crop details, hypothecation of crops (if any), and sanction of loans based on the scale of finance. Banks shall also maintain records of field visits by officials to monitor end use. In the case of landless labourers or sharecroppers—where land records/lease deeds are unavailable—banks shall ensure that alternative verifiable records are maintained to substantiate PSL eligibility. Banks should also ensure proper documentation, as per their internal policy, for classification of agricultural loans under PSL.

Explanation 2: Bank loans extended for agricultural activities do not become ineligible for priority sector classification merely because the underlying collateral is in the form of gold jewellery or ornaments. Such loans should, however, be sanctioned based on the scale of finance and a proper assessment of credit requirements for the agricultural activity, and not solely based on type or value of collateral.

(6) Each priority sector loan shall be classified only in any one of the eight identified categories specified in paragraph 8 of these Master Directions.

Chapter VII - Exemptions, Repeal and Other Provisions

A. Exemptions

94. The Reserve Bank may, if it considers necessary for avoiding any hardship or for any other just and sufficient reason, grant extension of time to comply with or exempt any regulated entity, from all or any of the provisions of these Directions either generally or for any specified period, subject to such conditions as the Reserve Bank may prescribe.

B. Repeal and saving

95. With the issue of these Directions, the existing Directions, instructions, and guidelines relating to Priority Sector Lending – Targets and Classification as applicable to Commercial Banks stand repealed. The Directions, instructions and guidelines repealed prior to the issuance of these Directions shall continue to remain repealed.

96. Notwithstanding such repeal, any action taken or purported to have been taken, or initiated under the repealed Directions, instructions, or guidelines, when such Directions, instructions, or guidelines were in force, shall continue to be governed by the provisions thereof. All approvals or acknowledgments granted under these repealed lists shall be deemed as governed by these Directions. Further, the repeal of these directions, instructions, or guidelines shall not in any way prejudicially affect:

(1) any right, obligation or liability acquired, accrued, or incurred thereunder;

(2) any, penalty, forfeiture, or punishment incurred in respect of any contravention committed thereunder;

(3) any investigation, legal proceeding, or remedy in respect of any such right, privilege, obligation, liability, penalty, forfeiture, or punishment as aforesaid; and any such investigation, legal proceedings or remedy may be instituted, continued, or enforced and any such penalty, forfeiture or punishment may be imposed as if those directions, instructions, or guidelines had not been repealed.

C. Application of other laws not barred

97. The provisions of these Directions shall be in addition to, and not in derogation of the provisions of any other laws, rules, regulations, or directions, for the time being in force.

98. For the purpose of giving effect to the provisions of these Directions or in order to remove any difficulties in the application or interpretation of the provisions of these Directions, the RBI may, if it considers necessary, issue necessary clarifications in respect of any matter covered herein and the interpretation of any provision of these Directions given by the RBI shall be final and binding.

(Nisha Nambiar)
Chief General Manager-in-Charge