Concept 1 · free preview
Priority sector lending: why it exists, ANBC/CEOBE and targets
Understand
Left to themselves, banks prefer large, well-documented borrowers: a ₹100 crore loan to a listed company costs about the same to process as a ₹50,000 crop loan, and looks safer. Farmers, tiny enterprises and weaker sections therefore get too little formal credit even though their activities create jobs and food security. Priority Sector Lending (प्राथमिकता क्षेत्र ऋण) corrects this by requiring every bank to direct a fixed share of its credit to sectors the nation considers important. The idea took shape after the National Credit Council (1968); after nationalisation banks were asked to lend one-third of credit to these sectors by March 1979, and on the Krishnaswamy Working Group's advice (1980) the target became 40% by 1985. Today's rules are in RBI's Master Directions – Priority Sector Lending (Targets and Classification) Directions, 2025, dated 24 March 2025, effective 1 April 2025, amended on 19 January, 7 August and 11 September 2026. They apply to all commercial banks (including RRBs, SFBs and LABs) and to UCBs. The target is a percentage of Adjusted Net Bank Credit (ANBC) or the Credit Equivalent of Off-Balance Sheet Exposures (CEOBE), whichever is higher, as on the corresponding date of the PRECEDING year. ANBC starts from bank credit in India, removes bills rediscounted with RBI and approved institutions to get Net Bank Credit, then adjusts for items such as eligible investments in RIDF/other funds and PSLCs. Achievement is checked every quarter, and the year's figure is the simple average of the four quarters, so a bank cannot dress up only its March numbers. To spread credit evenly, from FY 2024-25 to FY 2026-27 incremental PSL in districts with per-capita PSL below ₹9,000 gets 125% weight and in districts above ₹42,000 gets 90% weight (not for RRBs, UCBs, LABs and foreign banks).
Rule
Domestic commercial banks and foreign banks with 20 or more branches: total 40%; agriculture 18% (of which non-corporate farmers 14%); small and marginal farmers 10%; micro enterprises 7.5%; weaker sections 12%.
Foreign banks with fewer than 20 branches: total 40%, of which up to 32% may be export credit and at least 8% other PSL; no sub-targets.
RRBs: total 75%; agriculture 18%, non-corporate farmers 14%, small and marginal farmers 10%, micro 7.5%, weaker sections 15%; medium enterprises, social infrastructure and renewable energy count only up to 15% of ANBC.
SFBs: total 60% (cut from 75% from FY 2025-26); sub-targets as for domestic banks.
UCBs: total 60%; micro enterprises 7.5%; weaker sections 12%.
Targets are on ANBC or CEOBE, whichever is higher, as on the corresponding date of the preceding year; achievement = average of 4 quarters.
District weightage (FY 2024-25 to FY 2026-27): 125% for incremental PSL in districts with per-capita PSL below ₹9,000; 90% where it exceeds ₹42,000.
Current position
Targets above are as per the PSL Directions, 2025, as updated on 11 September 2026 (checked 11 October 2026); the 2026 amendments changed ANBC computation details, not the headline targets.
Effective: 11 Sep 2026Source (opens in a new tab)
Current position
SFB overall PSL target is 60% of ANBC or CEOBE, whichever is higher, from FY 2025-26 (earlier 75%).
Effective: 20 Jun 2025Source (opens in a new tab)
Example
A private bank's ANBC on 31 March 2026 was ₹1,00,000 crore and its CEOBE ₹80,000 crore. For FY 2026-27 it uses the higher base, ₹1,00,000 crore. It must lend ₹40,000 crore to the priority sector, of which ₹18,000 crore to agriculture, ₹10,000 crore to small and marginal farmers, ₹7,500 crore to micro enterprises and ₹12,000 crore to weaker sections. Its achievement is the average of the four quarter-end figures of FY 2026-27.
| Target (% of ANBC/CEOBE) | Domestic banks & foreign ≥20 branches | Foreign <20 branches | RRBs | SFBs | UCBs |
|---|---|---|---|---|---|
| Total PSL | 40 | 40 | 75 | 60 | 60 |
| Agriculture | 18 | — | 18 | 18 | — |
| Small & marginal farmers | 10 | — | 10 | 10 | — |
| Micro enterprises | 7.5 | — | 7.5 | 7.5 | 7.5 |
| Weaker sections | 12 | — | 15 | 12 | 12 |
Common mistake
The base is ANBC OR CEOBE, whichever is HIGHER — not the lower one and not total deposits.
The base is of the PRECEDING year's corresponding date, not the current year.
Weaker sections target is 15% for RRBs but 12% for commercial banks, SFBs and UCBs.
Foreign banks with fewer than 20 branches have NO agriculture or weaker-section sub-targets.
SFB target is 60% now; 75% is the RRB target (and the old SFB target).