The Reserve Bank of India issued amendments to its priority sector lending (PSL) framework, updating how banks calculate and meet PSL targets and refining the conditions under which exposures such as export credit, microfinance, securitised or transferred assets, on-lending and co-lending can be counted towards PSL. The changes also align key definitions and reporting with updated Reserve Bank of India prudential directions and introduce additional audit-certification and portfolio-verification expectations. Total PSL targets remain 40% of Adjusted Net Bank Credit (ANBC) or the Credit Equivalent of Off-Balance Sheet Exposures (CEOBSE), whichever is higher, for domestic commercial banks (excluding regional rural banks and small finance banks) and for foreign banks with 20 or more branches. Foreign banks with fewer than 20 branches have a 40% target with up to 32% permitted as export credit and at least 8% required to be in other priority sector categories, while regional rural banks retain a 75% target with medium enterprises, social infrastructure and renewable energy counting towards achievement only up to 15% of ANBC. For small finance banks, the amended table sets the total PSL target at 60% of ANBC or CEOBSE. The amendments also clarify ANBC deductions and exemptions, including for long-term bonds for infrastructure and affordable housing and the treatment of incremental advances funded from eligible incremental Foreign Currency Non-Resident Bank and Non-Resident External deposits, link CEOBSE measurement to the Large Exposures Framework and relevant capital adequacy norms by bank type, and add detailed guidance for small finance banks on the treatment of grandfathered loans and the basis for setting their first PSL target post-commencement. Export credit is defined as pre-shipment and post-shipment credit excluding off-balance sheet items, with export credit to agriculture and micro, small and medium enterprises eligible to be classified under the respective PSL categories. Population-based classifications may use Census 2011 urban agglomeration and town data, with rural properties outside the relevant Census table treated as centres with population below 10 lakh for housing limits, and the loan cap for building health care facilities in Tier II to Tier VI centres is set at INR 12 crore per borrower. For securitisation and risk transfer, banks may determine the PSL status of underlying portfolios through external auditor certification combined with sample checks under internal policy, and the Priority Sector Lending Certificate scheme is consolidated into a new annex with small finance banks permitted to purchase PSLCs only to meet PSL sub-targets. On-lending to microfinance institutions, non-banking financial companies and housing finance companies now requires external auditor certificates to prevent multiple banks claiming PSL benefit on the same underlying loans, underlying housing loans financed via eligible housing finance company on-lending remain subject to an aggregate limit of INR 20 lakh per borrower, and bank credit to the National Co-operative Development Corporation for on-lending becomes PSL-eligible for loans sanctioned after January 19, 2026 subject to quarterly certification. The amendments also cap PSL recognition for on-lending exposures to NBFCs including HFCs and NCDC at 5% of a bank’s prior-year PSL, preserve PSL eligibility for existing co-origination and co-lending loans until repayment or maturity, update reporting deadlines to within 15 days of quarter-end and one month of financial year-end, prohibit loan-related charges on PSL loans up to INR 50,000 with the threshold applied per self-help group or joint liability group member, delete specified provisions in the Directions, and remove Neem Ka Thana, Gangapurcity, Jodhpur Rural and Sanchore from annexed district lists.

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