SBI Research has called for a comprehensive overhaul of India’s Priority Sector Lending (PSL) framework, arguing that the nearly five-decade-old guidelines must evolve to support the country’s long-term development ambitions under the Viksit Bharat 2047 vision.
In a report released on Wednesday, the research team said the existing PSL architecture, introduced in 1972 to improve credit access for underserved sectors, has largely fulfilled its original objective. However, it now needs to be realigned with emerging financing requirements such as infrastructure, climate finance, renewable energy, ESG-linked projects and the electric vehicle ecosystem.
“Possibly, an opportune time has now come to assess future needs of financial inclusion and priority sector lending and make policy changes needed to ensure access to finance to weaker sections in line with the Viksit Bharat objective,” the report said.
The report noted that while banks are comfortably meeting the mandatory target of lending 40 per cent of their Adjusted Net Bank Credit (ANBC) to priority sectors, the current framework does not adequately incentivise financing for sectors that will be critical to achieving India’s 2047 growth aspirations.
Among its key recommendations, SBI Research proposed granting priority sector status to all infrastructure loans or, alternatively, excluding infrastructure lending from ANBC calculations for PSL compliance. It argued that such a move would better recognise banks’ contribution to long-term infrastructure financing.
The report also recommended reforms to the Rural Infrastructure Development Fund (RIDF), suggesting changes in capital treatment and interest provisions to improve incentives for banks. According to the report, banks currently find it more attractive to purchase Priority Sector Lending Certificates (PSLCs) than contribute to the RIDF, indicating the need for a rebalanced framework.
SBI Research said expanding the scope of eligible priority sectors and updating lending norms in line with new-age industries would improve credit flow to areas that are expected to drive India’s next phase of economic growth. It added that a modernised PSL framework would strengthen financial inclusion while supporting sustainable development and the broader Viksit Bharat agenda.