The Reserve Bank of India has issued updated Master Directions on Priority Sector Lending (PSL) targets and classification, consolidating the applicable framework for commercial banks (including regional rural banks, small finance banks and local area banks) and primary urban co-operative banks other than salary earners’ banks. The Directions take effect on 1 April 2025 and supersede the 2020 PSL Directions, while loans already classified as PSL under the prior framework will remain eligible until maturity. The Directions restate PSL categories and the computation basis for targets (Adjusted Net Bank Credit or credit equivalent of off-balance sheet exposures, as applicable), and set or reiterate headline targets and sub-targets by bank type, including total PSL, agriculture (with sub-targets for non-corporate farmers and small and marginal farmers), micro enterprises, and weaker sections. They also embed a district-level incentive and disincentive weighting for incremental PSL to address regional disparities, assigning a 125% weight for incremental credit in identified lower-credit-flow districts (per capita PSL below INR 9,000) and a 90% weight in identified higher-credit-flow districts (per capita PSL above INR 42,000), with lists to remain valid up to FY 2026-27 subject to review; RBI will apply the adjustments based on district-wise reporting through ADEPT, and regional rural banks, urban co-operative banks, local area banks and foreign banks are exempt from the weighting adjustments. Operationally, compliance will be monitored on a calendar-quarter basis with prescribed quarterly and annual reporting timelines, and shortfalls against targets or sub-targets will result in allocations to the Rural Infrastructure Development Fund and other eligible funds with NABARD, National Housing Bank, Small Industries Development Bank of India and MUDRA Ltd., with deposit rates linked to the size of the shortfall (Bank Rate minus 2 to 4 percentage points). Non-achievement of PSL targets and sub-targets will also be taken into account for regulatory clearances and approvals.

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