Priority Sector Lending and Financial Inclusion Obligations
What the exam tests
The two quantitative obligations unique to SFBs - 75% of Adjusted Net Bank Credit (ANBC) in priority sector lending and 50% of the loan book in small-ticket loans - plus the rural branch obligation and the instruments used to bridge shortfalls.
Core rules
- PSL target: 75% of ANBC, against 40% for universal banks. ANBC is built from net bank credit plus eligible investments, not from total assets.
- Size sub-target: at least 50% of the loan portfolio must be loans and advances of up to Rs 25 lakh, irrespective of sector. This is a composition requirement of the whole book.
- Branch obligation: at least 25% of branches in unbanked rural centres, i.e. population below 10,000 as per the latest census.
- Shortfall management: unmet PSL targets are met through contributions to the Rural Infrastructure Development Fund with NABARD/SIDBI, or by purchasing Priority Sector Lending Certificates (PSLCs) in the prescribed categories.
- Inclusion products: BSBDA/zero-balance accounts, Aadhaar-enabled payment systems, direct benefit transfer credit, micro-insurance and pension distribution, and lending to micro-enterprises and weaker sections.
Worked example
ANBC is Rs 1,200 crore and PSL outstanding is Rs 864 crore = 72%. The shortfall is 3% of ANBC = Rs 36 crore, which must go to RIDF if not lent before year-end. Separately, the Rs 1,000 crore loan book holds only Rs 460 crore of loans up to Rs 25 lakh = 46%, below the 50% test, so Rs 40 crore of additional small-ticket lending is needed. Buying PSLCs repairs the first gap but not the second, which concerns the bank's own book.
Marks-losing traps
Computing the target on total assets or deposits; importing the 40% universal-bank figure; measuring the 25% branch rule by business volume instead of branch count; assuming PSLC purchase cures the Rs 25 lakh size test.