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RESERVE BANK OF INDIA
www.rbi.org.in
RBI/FIDD/2016-17/33
Master Direction FIDD.CO.Plan.1/04.09.01/2016-17 July 7, 2016
(Updated as on August 01, 2018)
(Updated as on April 16, 2018)
(Updated as on December 22, 2016)
(Updated as on July 28, 2016)

The Chairman / Managing Director/

Chief Executive Officer
[All Scheduled Commercial Banks,
(excluding Regional Rural Banks and Small Finance Banks)]

Dear Sir/ Madam,

MASTER DIRECTION-PRIORITY SECTOR LENDING-TARGETS
AND CLASSIFICATION

The Reserve Bank of India has, from time to time, issued a number of
guidelines/instructions/directives to banks on Priority Sector Lending. The Master Direction enclosed
incorporates the updated guidelines/ instructions/ circulars on the subject. The list of circulars
consolidated in this Master Direction is indicated in the Appendix. The Direction will be updated
from time to time as and when fresh instructions are issued. This Master Direction has been placed on
the RBI website at www.rbi.org.in.

2. The guidelines on priority sector lending were revised vide our circular dated April 23, 2015. The
priority sector loans sanctioned under the guidelines issued prior to April 23, 2015 will continue to be
classified under priority sector till repayment/maturity/renewal.

Yours faithfully,

(Gautam Prasad Borah)

Chief General Manager–in-Charge

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Caution: RBI never sends mails, SMSs or makes calls asking for personal information like bank account details, passwords, etc. It never keeps or offers funds to anyone.
Please do not respond in any manner to such offers.
 Master Direction- Reserve Bank of India (Priority Sector Lending –Targets and
Classification) Directions, 2016

In exercise of the powers conferred by Sections 21 and 35 A of the Banking Regulation Act,
1949, the Reserve Bank of India being satisfied that it is necessary and expedient in the public
interest so to do, hereby, issues the Directions hereinafter specified.

CHAPTER – I
PRELIMINARY

1. Short Title and Commencement

(a) These Directions shall be called the Reserve Bank of India (Priority Sector Lending –
Targets and Classification) Directions, 2016.
(b) These Directions shall come into effect on the day they are placed on the official website of
the Reserve Bank of India.

2. Applicability
The provisions of these Directions shall apply to every Scheduled Commercial Bank {excluding
Regional Rural Banks (RRBs) and Small Finance Banks (SFBs)} licensed to operate in India by
the Reserve Bank of India.

3. Definitions/ Clarifications
(a) In these Directions, unless the context otherwise requires, the terms herein shall bear the
meanings assigned to them below:

(i) On-lending means loans sanctioned by banks to eligible intermediaries for onward lending
only for creation of priority sector assets. The average maturity of priority sector assets thus
created should be broadly co-terminus with maturity of the bank loan.

(ii) Contingent liabilities/off-balance sheet items do not form part of priority sector target
achievement. However, foreign banks with less than 20 branches have an option to reckon the
credit equivalent of off-balance sheet items, extended to borrowers for eligible priority sector
activities, along with priority sector loans for the purpose of computation of priority sector
target achievement. In that case, the credit equivalent of all off-balance sheet items (both
priority sector and non-priority sector excluding interbank) should be added to the ANBC in

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 the denominator for computation of Priority Sector Lending targets.

(iii) Off-balance sheet interbank exposures are excluded for computing Credit Equivalent of Off -
Balance Sheet Exposures for the priority sector targets.

(iv) The term “all inclusive interest” includes interest (effective annual interest), processing fees
and service charges.

(b) Banks should ensure that loans extended under priority sector are for approved
purposes and the end use is continuously monitored. The banks should put in
place proper internal controls and systems in this regard.

(c) All other expressions unless defined herein shall have the same meaning as have been
assigned to them under the Banking Regulation Act or the Reserve Bank of India Act, or any
statutory modification or re-enactment thereto or as used in commercial parlance, as the case
may be.

CHAPTER - II
CATEGORIES AND TARGETS UNDER PRIORITY SECTOR

4. The categories under priority sector are as follows:

(i) Agriculture
(ii) Micro, Small and Medium Enterprises
(iii) Export Credit
(iv) Education
(v) Housing
(vi) Social Infrastructure
(vii) Renewable Energy
(viii) Others

The details of eligible activities under the above categories are specified in Chapter III.

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5. Targets /Sub-targets for Priority sector

(i) The targets and sub-targets set under priority sector lending for all scheduled commercial banks
operating in India are furnished below:
Categories Domestic scheduled commercial banks Foreign banks with less than 20
and foreign banks with 20 branches branches
and above
Total Priority Sector 40 per cent of Adjusted Net Bank Credit 40 per cent of Adjusted Net Bank
[ANBC defined in sub paragraph (iii)] or Credit [ANBC defined in sub
Credit Equivalent Amount of Off- paragraph (iii)] or Credit Equivalent
Balance Sheet Exposure, whichever is Amount of Off-Balance Sheet
higher. Expsoure, whichever is higher; to
be achieved in a phased manner by
2020 as indicated in sub paragraph
(ii) below.
Agriculture 18 per cent of ANBC or Credit Not applicable
Equivalent Amount of Off-Balance Sheet
Exposure, whichever is higher.
Within the 18 per cent target for
agriculture, a target of 8 percent of
ANBC or Credit Equivalent Amount of
Off-Balance Sheet Exposure, whichever
is higher is prescribed for Small and
Marginal Farmers. ##
Micro Enterprises 7.5 per cent of ANBC or Credit Not applicable
Equivalent Amount of Off-Balance Sheet
Exposure, whichever is higher
Advances to Weaker 10 percent of ANBC or Credit Not applicable
Sections Equivalent Amount of Off-Balance Sheet
Exposure, whichever is higher

## Additionally, domestic banks are directed to ensure that the overall lending to non-corporate
farmers does not fall below the system-wide average of the last three years achievement. All efforts
should be maintained to reach the level of 13.5 percent direct lending to the beneficiaries who earlier
constituted the direct agriculture sector. The applicable system wide average figure for computing
achievement under priority sector lending will be notified every year. For FY 2018-19, the applicable
system wide average figure is 11.99 percent.

(ii) The Total Priority Sector target of 40 percent for foreign banks with less than 20 branches has to
be achieved in a phased manner as under:-
Financial Year The Total Priority Sector as percentage of
ANBC or Credit Equivalent Amount of Off-
Balance Sheet Exposure, whichever is higher
2015-16 32
2016-17 34
2017-18 36
2018-19 38
2019-20 40

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 The additional priority sector lending target of 2 percent of ANBC each year from 2016-17 to 2019-
20 has to be achieved by lending to sectors other than exports. The sub- targets for these banks, to be
made applicable post 2020, would be decided in due course.

(iii) The computation of priority sector targets/sub-targets achievement will be based on the ANBC or
Credit Equivalent Amount of Off-Balance Sheet Exposures, whichever is higher, as on the
corresponding date of the preceding year. For the purpose of priority sector lending, ANBC denotes
the outstanding Bank Credit in India [As prescribed in item No.VI of Form ‘A’ under Section 42 (2)
of the RBI Act, 1934] minus bills rediscounted with RBI and other approved Financial Institutions
plus permitted non-SLR bonds/debentures under Held to Maturity (HTM) category plus other
investments eligible to be treated as part of priority sector lending (e.g. investments in securitised
assets). The outstanding deposits under RIDF and other funds with NABARD, NHB, SIDBI and
MUDRA Ltd. in lieu of non-achievement of priority sector lending targets/sub-targets will form part
of ANBC. Advances extended in India against the incremental FCNR (B)/NRE deposits, qualifying
for exemption from CRR/SLR requirements, as per the Reserve Bank’s circulars
DBOD.No.Ret.BC.36/12.01.001/2013-14 dated August 14, 2013 read with
DBOD.No.Ret.BC.93/12.01.001/2013-14 dated January 31, 2014 and DBOD mailbox clarification
issued on February 6, 2014 will be excluded from the ANBC for computation of priority sector
lending targets, till their repayment. The eligible amount for exemption on account of issuance of
long-term bonds for infrastructure and affordable housing as per Reserve Bank’s circular
DBOD.BP.BC.No.25/08.12.014/2014-15 dated July 15, 2014 will also be excluded from the ANBC
for computation of priority sector lending targets. For the purpose of calculation of Credit Equivalent
Amount of Off-Balance Sheet Exposures, banks may be guided by the Master Circular on Exposure
Norms issued by our Department of Banking Regulation.
Computation of Adjusted Net Bank Credit (ANBC)
Bank Credit in India [As prescribed in item No.VI of Form ‘A’ under Section 42 (2) I
of the RBI Act, 1934].
Bills Rediscounted with RBI and other approved Financial Institutions II
Net Bank Credit (NBC)* III (I-II)
Bonds/debentures in Non-SLR categories under HTM category+ other investments IV
eligible to be treated as priority sector +Outstanding Deposits under RIDF and other
eligible funds with NABARD, NHB, SIDBI and MUDRA Ltd. on account of
priority sector shortfall + outstanding PSLCs
Eligible amount for exemptions on issuance of long-term bonds for infrastructure and V
affordable housing as per circular DBOD.BP.BC.No.25/08.12.014/2014-15 dated July 15,
2014.
Eligible advances extended in India against the incremental FCNR (B)/NRE VI
deposits, qualifying for exemption from CRR/SLR requirements.
ANBC III+IV-V-
VI

* For the purpose of priority sector computation only. Banks should not deduct / net any amount like
provisions, accrued interest, etc. from NBC.

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It has been observed that some banks are subtracting prudential write off at Corporate/Head Office
level while reporting Bank Credit as above. In such cases it must be ensured that bank credit to
priority sector and all other sub-sectors so written off should also be subtracted category wise from
priority sector and sub-target achievement.

All types of loans, investments or any other items which are treated as eligible for classification under
priority sector target/sub-target achievement should also form part of Adjusted Net Bank Credit.

CHAPTER - III
DESCRIPTION OF ELIGIBLE CATEGORIES UNDER PRIORITY SECTOR

6. Agriculture
The lending to agriculture sector has been defined to include (i) Farm Credit (which will include
short-term crop loans and medium/long-term credit to farmers) (ii) Agriculture Infrastructure and (iii)
Ancillary Activities. A list of eligible activities under the three sub-categories is indicated below:
6.1 Farm credit A. Loans to individual farmers [including Self Help Groups (SHGs) or Joint
Liability Groups (JLGs), i.e. groups of individual farmers, provided banks
maintain disaggregated data of such loans] and Proprietorship firms of farmers,
directly engaged in Agriculture and Allied Activities, viz., dairy, fishery, animal
husbandry, poultry, bee-keeping and sericulture. This will include:

(i) Crop loans to farmers, which will include traditional/non-traditional

plantations and horticulture, and, loans for allied activities.
(ii) Medium and long-term loans to farmers for agriculture and allied
activities (e.g. purchase of agricultural implements and machinery, loans
for irrigation and other developmental activities undertaken in the farm,
and developmental loans for allied activities.)
(iii) Loans to farmers for pre and post-harvest activities, viz., spraying,
weeding, harvesting, sorting, grading and transporting of their own farm
produce.
(iv) !"#$%& '"& (#)*+)%& ,-& '"& ./ million against pledge/hypothecation of
agricultural produce (including warehouse receipts) for a period not
exceeding 12 months.
(v) Loans to distressed farmers indebted to non-institutional lenders.
(vi) Loans to farmers under the Kisan Credit Card Scheme.
(vii) Loans to small and marginal farmers for purchase of land for agricultural
purposes.

B. Loans to corporate farmers, farmers’ producer organizations/companies of

individual farmers, partnership firms and co-operatives of farmers directly

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 engaged in Agriculture and Allied Activities, viz. diary, fishery, animal
husbandry, poultry, bee-keeping and sericulture up to an aggregate 01*1'&"(&.20
million per borrower. This will include:
(i) Crop loans to farmers which will include traditional/non-traditional
plantations and horticulture, and, loans for allied activities.
(ii) Medium and long-term loans to farmers for agriculture and allied activities
(e.g. purchase of agricultural implements and machinery, loans for irrigation and
other developmental activities undertaken in the farm, and developmental loans
for allied activities.)
(iii) Loans to farmers for pre and post-harvest activities, viz., spraying, weeding,
harvesting, sorting, grading and transporting of their own farm produce.
(iv) !"#$%&,-&'"&./ million against pledge/hypothecation of agricultural produce
(including warehouse receipts) for a period not exceeding 12 months.
6.2 Agriculture i) Loans for construction of storage facilities (warehouse, market yards, godowns
infrastructure
and silos) including cold storage units/cold storage chains designed to store
agriculture produce/products, irrespective of their location.
ii) Soil conservation and watershed development
iii) Plant tissue culture and agri-biotechnology, seed production, production of
bio-pesticides, bio-fertilizer, and vermi composting.
3")& '4+& #5"6+& 0"#$%7& #$& #88)+8#'+& %#$9'1"$+:& 01*1'& "(& .; billion per borrower
from the banking system, will apply.
6.3 Ancillary <1=&!"#$%&,-&'"&./0 million to co-operative societies of farmers for disposing of
activities
the produce of members.
(ii) Loans for setting up of Agriclinics and Agribusiness Centres.
(iii) Loans for Food and Agro-processing up to an aggregate sanctioned limit of
.; billion per borrower from the banking system.
(iv) Loans to Custom Service Units managed by individuals, institutions or
organizations who maintain a fleet of tractors, bulldozers, well-boring
equipment, threshers, combines, etc., and undertake farm work for farmers on
contract basis.
(v) Bank loans to Primary Agricultural Credit Societies (PACS), Farmers’
Service Societies (FSS) and Large-sized Adivasi Multi-Purpose Societies
(LAMPS) for on-lending to agriculture.
(vi) Loans sanctioned by banks to MFIs for on-lending to agriculture sector as
per the conditions specified in paragraph 19 of these Master Directions.
(vii) Outstanding deposits under RIDF and other eligible funds with NABARD
on account of priority sector shortfall.

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For the purpose of computation of achievement of the sub-target, Small and Marginal Farmers will
include the following:-
- Farmers with landholding of up to 1 hectare (Marginal Farmers). Farmers with a landholding
of more than 1 hectare and up to 2 hectares (Small Farmers).
- Landless agricultural labourers, tenant farmers, oral lessees and share-croppers, whose share
of landholding is within the limits prescribed for small and marginal farmers.
- Loans to Self Help Groups (SHGs) or Joint Liability Groups (JLGs), i.e. groups of individual
Small and Marginal farmers directly engaged in Agriculture and Allied Activities, provided
banks maintain disaggregated data of such loans.
- Loans to farmers' producer companies of individual farmers, and co-operatives of farmers
directly engaged in Agriculture and Allied Activities, where the membership of Small and
Marginal Farmers is not less than 75 per cent by number and whose land-holding share is also
not less than 75 per cent of the total land-holding.

7. Micro, Small and Medium Enterprises (MSMEs)

7.1. Limits for investment in plant and machinery/ equipment: The limits for investment in plant
and machinery/equipment for manufacturing / service enterprise, as notified by Ministry of Micro,
Small and Medium Enterprises, vide S.O.1642(E) dated September 9, 2006 are as under:-

Manufacturing Sector
Enterprises Investment in plant and machinery
Micro Enterprises Does not exceed twenty five lakh rupees
Small Enterprises More than twenty five lakh rupees but does not
exceed five crore rupees
Medium Enterprises More than five crore rupees but does not exceed
ten crore rupees
Service Sector
Enterprises Investment in equipment
Micro Enterprises Does not exceed ten lakh rupees
Small Enterprises More than ten lakh rupees but does not exceed two
crore rupees
Medium Enterprises More than two crore rupees but does not exceed
five crore rupees

Bank loans to Micro, Small and Medium Enterprises, for both manufacturing and service sectors are
eligible to be classified under the priority sector as per the following norms:
7.2. Manufacturing Enterprises

The Micro, Small and Medium Enterprises engaged in the manufacture or production of goods to any
industry specified in the first schedule to the Industries (Development and Regulation) Act, 1951 and

8|P a g e
as notified by the Government from time to time. The Manufacturing Enterprises are defined in terms
of investment in plant and machinery.

7.3. Service Enterprises

All bank loans to MSMEs, engaged in providing or rendering of services as defined in terms of
investment in equipment under MSMED Act, 2006, shall qualify under priority sector without any
credit cap.

7.4. Factoring Transactions

(i) Factoring transactions on ‘with recourse’ basis by banks which carry out the business of factoring
departmentally, wherever the ‘assignor’ is a Micro, Small or Medium Enterprise, subject to the
corresponding limits for investment in plant and machinery/ equipment and other extant guidelines for
priority sector classification. Such outstanding factoring portfolios may be classified by banks under
MSME category on the reporting dates.

(ii) In terms of paragraph 9 of the Department of Banking Regulation Circular DBR.No.

FSD.BC.32/24.01.007/2015-16 dated July 30, 2015 on ‘Provision of Factoring Services by Banks-
Review’, inter-alia, the borrower’s bank shall obtain from the borrower, periodical certificates
regarding factored receivables to avoid double financing/ counting. Further, the ‘factors’ must
intimate the limits sanctioned to the borrower and details of debts factored to the banks concerned,
taking responsibility to avoid double financing.

(iii) Factoring transactions taking place through the Trade Receivables Discounting System (TReDS)
shall also be eligible for classification under priority sector upon operationalization of the platform.

7.5. Khadi and Village Industries Sector (KVI)

All loans to units in the KVI sector will be eligible for classification under the sub-target of 7.5
percent prescribed for Micro Enterprises under priority sector.

7.6. Other Finance to MSMEs

(i) Loans to entities involved in assisting the decentralized sector in the supply of inputs to and
marketing of outputs of artisans, village and cottage industries.
(ii) Loans to co-operatives of producers in the decentralized sector viz. artisans, village and cottage
industries.
(iii) Loans sanctioned by banks to MFIs for on-lending to MSME sector as per the conditions
specified in paragraph 19 of these Master Directions.
(iv) Credit outstanding under General Credit Cards (including Artisan Credit Card, Laghu Udyami
Card, Swarojgar Credit Card, and Weaver’s Card etc. in existence and catering to the non-farm
entrepreneurial credit needs of individuals).

9|P a g e
(v) >6+):)#('%& +?'+$:+:& 5@& 5#$A%& #('+)& B-)10& C7& 2D;/& ,-'"& .5,000 under Pradhan Mantri Jan Dhan
E"F#$#&<GHIJE=&#99",$'%&-)"61:+:&'4+&5"))"K+)L%&4",%+4"0:&#$$,#0&1$9"*+&:"+%&$"'&+?9++:&.&0.1
million (")& ),)#0& #)+#%& #$:& .& 0.16 million for non-rural areas. These overdrafts will qualify as
achievement of the target for lending to Micro Enterprises.
(vi) Outstanding deposits with SIDBI and MUDRA Ltd. on account of priority sector shortfall.

7.6. To ensure that MSMEs do not remain small and medium units merely to remain eligible for
priority sector status, the MSME units will continue to enjoy the priority sector lending status up to
three years after they grow out of the MSME category concerned.

8. Export Credit

The Export Credit extended as per the details below will be classified as priority sector.

Domestic banks Foreign banks with 20 branches Foreign banks with

and above less than 20 branches

Incremental export credit over Incremental export credit over Export credit will be
corresponding date of the corresponding date of the preceding allowed up to 32
preceding year, up to 2 percent of year, up to 2 percent of ANBC or percent of ANBC or
ANBC or Credit Equivalent Credit Equivalent Amount of Off- Credit Equivalent
Amount of Off-Balance Sheet Balance Sheet Exposure, whichever Amount of Off-
Exposure, whichever is higher, is higher, effective from April 1, Balance Sheet
effective from April 1, 2015 2017. Exposure, whichever
subject to a sanctioned limit of up is higher.
'"&.250 million per borrower to
units having turnover of up to . 1
billion.

Export credit includes pre-shipment and post-shipment export credit (excluding off-balance sheet
items) as defined in Master Circular on Rupee / Foreign Currency Export Credit and Customer
Service to Exporters issued by our Department of Banking Regulation.

9. Education
!"#$%& '"& 1$:161:,#0%& (")& +:,9#'1"$#0& -,)-"%+%& 1$90,:1$8& 6"9#'1"$#0& 9",)%+%& ,-'"& .; million
irrespective of the sanctioned amount will be considered as eligible for priority sector.

10. Housing
10.1 !"#$%&'"&1$:161:,#0%&,-&'"&.MN/&*1001"$&1$&*+')"-"01'#$&9+$')+%&<K1'4&-"-,0#'1"$&"(&'+$&0#A4&#$:
#5"6+=&#$:&0"#$%&,-&'"&.2N/&million in other centres for purchase/construction of a dwelling unit per
family provided the overall cost of the dwelling unit in the metropolitan centre and at other centres

10 | P a g e
:"+%& $"'& +?9++:& .ON/& *1001"$& #$:& .M& *1001"$7& )+%-+9'16+0@N& P4+& 4",%1$8& 0"#$%& '"& 5#$A%L& "K$
employees will be excluded. As housing loans which are backed by long term bonds are exempted
()"*& BQRS7& 5#$A%& %4",0:& +1'4+)& 1$90,:+& %,94& 4",%1$8& 0"#$%& '"& 1$:161:,#0%& ,-& '"& .MN/& *1001"$& 1$&
*+')"-"01'#$& 9+$')+%& #$:& .2N/& *1001"$& 1$& "'4+)& 9+$')+%& ,$:+)& -)1")ity sector or take benefit of
exemption from ANBC, but not both.

10.2 Loans for repairs to :#*#8+:& :K+001$8& ,$1'%& "(& (#*101+%& ,-& '"& .0.5 million in metropolitan
centres and ,-&'"&.0.2 million in other centres.

10.3 Bank loans to any governmental agency for construction of dwelling units or for slum clearance
#$:&)+4#5101'#'1"$&"(&%0,*&:K+00+)%&%,5F+9'&'"&#&9+101$8&"(&.; million per dwelling unit.

10.4 The loans sanctioned by banks for housing projects exclusively for the purpose of construction of
houses for Economically Weaker Sections (EWS) and Low Income Groups (LIG), the total cost of
K4194&:"+%&$"'&+?9++:&.;&*1001"$&-+)&:K+001$8&,$1'N&3")&'4+&-,)-"%+&"(&1:+$'1(@1$8&'4+&+9"$"*19#00@
K+#A+)&%+9'1"$%&#$:&0"K&1$9"*+&8)",-%7&'4+&(#*10@&1$9"*+&01*1'&1%&)+61%+:&'"&.DNM&*1001"$&-+)&#$$,*&
(")&TUV&#$:&.DNW&*1001"$&-+)&#$$,*&(")&!XY7&1$&#018$*+$'&K1'4&'4+&1$9"*+&9)1'+)1#&%-+91(1+:&,$:+)&
the Pradhan Mantri Awas Yojana.

10.5 Bank loans to Housing Finance Companies (HFCs), approved by NHB for their refinance, for
on-lending for the purpose of purchase/construction/reconstruction of individual dwelling units or for
%0,*&90+#)#$9+&#$:&)+4#5101'#'1"$&"(&%0,*&:K+00+)%7&%,5F+9'&'"&#$&#88)+8#'+&0"#$&01*1'&"(&.; million per
borrower.
The eligibility under priority sector loans to HFCs is restricted to five percent of the individual bank’s
total priority sector lending, on an ongoing basis. The maturity of bank loans should be co-terminus
with average maturity of loans extended by HFCs. Banks should maintain necessary borrower-wise
details of the underlying portfolio.

10.6 Outstanding deposits with NHB on account of priority sector shortfall.

11. Social infrastructure

11.1. R#$A& 0"#$%& ,-& '"& #& 01*1'& "(& ./0 million per borrower for building social infrastructure for
activities namely schools, health care facilities, drinking water facilities and sanitation facilities
including construction/ refurbishment of household toilets and household level water improvements in
Tier II to Tier VI centres.
11.2. Bank credit to Micro Finance Institutions (MFIs) extended for on-lending to individuals and also
to members of SHGs/JLGs for water and sanitation facilities will be eligible for categorization as
priority sector under ‘Social Infrastructure’, subject to the criteria laid down in paragraph 19 of these
Master Directions.

11 | P a g e
12. Renewable Energy
R#$A&0"#$%&,-&'"&#&01*1'&"(&.;/0 million to borrowers for purposes like solar based power generators,
biomass based power generators, wind mills, micro-hydel plants and for non-conventional energy
based public utilities viz. street lighting systems, and remote village electrification. For individual
4",%+4"0:%7&'4+&0"#$&01*1'&K100&5+&.; million per borrower.

13. Others
13.1. !"#$%&$"'&+?9++:1$8&./D7DDDZ- per borrower provided directly by banks to individuals and their
SHG/JLG, provided the individual borrower’s household annual income in rural areas does not exceed
.0.1 million and for non-),)#0&#)+#%&1'&:"+%&$"'&+?9++:&.0.16 million.
13.2. Loans to distressed persons [other than farmers included under paragraph 6(6.1)(A)(v)] not
+?9++:1$8&.0.1 million per borrower to prepay their debt to non-institutional lenders.
13.3. Loans sanctioned to State Sponsored Organisations for Scheduled Castes/ Scheduled Tribes for
the specific purpose of purchase and supply of inputs and/or the marketing of the outputs of the
beneficiaries of these organisations.

14. Weaker Sections

Priority sector loans to the following borrowers will be considered under Weaker Sections category:-
No. Category
(i) Small and Marginal Farmers
(ii) Artisans, village and cottage industries where individual credit limits do not exceed
.0.1 million
(iii) Beneficiaries under Government Sponsored Schemes such as National Rural
Livelihood Mission (NRLM), National Urban Livelihood Mission (NULM) and Self
Employment Scheme for Rehabilitation of Manual Scavengers (SRMS)
(iv) Scheduled Castes and Scheduled Tribes
(v) Beneficiaries of Differential Rate of Interest (DRI) scheme
(vi) Self Help Groups
(vii) Distressed farmers indebted to non-institutional lenders
(viii) J1%')+%%+:&-+)%"$%&"'4+)&'4#$&(#)*+)%7&K1'4&0"#$&#*",$'&$"'&+?9++:1$8&.0.1 million per
borrower to prepay their debt to non-institutional lenders
(ix) X$:161:,#0&K"*+$&5+$+(191#)1+%&,-&'"&.0.1 million per borrower
(x) Persons with disabilities
(xi) >6+):)#('%& ,-'"& ./7DDDZ- under Pradhan Mantri Jan-DhanYojana (PMJDY) accounts,
-)"61:+:& '4+& 5"))"K+)L%& 4",%+4"0:& #$$,#0& 1$9"*+& :"+%& $"'& +?9++:& .0.1 million for
),)#0&#)+#%&#$:&.0.16 million for non-rural areas
(xii) Minority communities as may be notified by Government of India from time to time.
In States, where one of the minority communities notified is, in fact, in majority, item (xii) will cover
only the other notified minorities. These States/ Union Territories are Jammu & Kashmir, Punjab,
Meghalaya, Mizoram, Nagaland and Lakshadweep.

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 CHAPTER IV
MISCELLANEOUS
15. Investments by banks in securitised assets
(i) Investments by banks in securitised assets, representing loans to various categories of priority
sector, except 'others' category, are eligible for classification under respective categories of priority
sector depending on the underlying assets provided:

(a) the securitised assets are originated by banks and financial institutions and are eligible to be
classified as priority sector advances prior to securitisation and fulfil the Reserve Bank of India
guidelines on securitisation.
(b) the all inclusive interest charged to the ultimate borrower by the originating entity should not
exceed the Base Rate of the investing bank plus 8 percent per annum.
The investments in securitised assets originated by MFIs, which comply with the guidelines in
Paragraph 19 of these Master Directions are exempted from this interest cap as there are separate
caps on margin and interest rate.

(ii) Investments made by banks in securitised assets originated by NBFCs, where the underlying
assets are loans against gold jewellery, are not eligible for priority sector status.

16. Transfer of Assets through Direct Assignment /Outright purchases

(i) Assignments/Outright purchases of pool of assets by banks representing loans under various
categories of priority sector, except the 'others' category, will be eligible for classification under
respective categories of priority sector provided:
(a) the assets are originated by banks and financial institutions which are eligible to be classified as
priority sector advances prior to the purchase and fulfil the Reserve Bank of India guidelines on
outright purchase/assignment.
(b) the eligible loan assets so purchased should not be disposed of other than by way of repayment.
(c) the all inclusive interest charged to the ultimate borrower by the originating entity should not
exceed the Base Rate of the purchasing bank plus 8 percent per annum.

The Assignments/Outright purchases of eligible priority sector loans from MFIs, which comply with
the guidelines in Paragraph 19 of these Master Directions are exempted from this interest rate cap as
there are separate caps on margin and interest rate.

(ii) When the banks undertake outright purchase of loan assets from banks/ financial institutions to be
classified under priority sector, they must report the nominal amount actually disbursed to end priority
sector borrowers and not the premium embedded amount paid to the sellers.

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(iii) Purchase/ assignment/investment transactions undertaken by banks with NBFCs, where the
underlying assets are loans against gold jewellery, are not eligible for priority sector status.

17. Inter Bank Participation Certificates

Inter Bank Participation Certificates (IBPCs) bought by banks, on a risk sharing basis, are eligible for
classification under respective categories of priority sector, provided the underlying assets are eligible
to be categorized under the respective categories of priority sector and the banks fulfil the Reserve
Bank of India guidelines on IBPCs.
With regard to the underlying assets of the IBPC transactions being eligible for categorization under
‘Export Credit’ as per Para 8, the IBPC bought by banks, on a risk sharing basis, may be classified
from purchasing bank’s perspective for priority sector categorization. However, in such a scenario,
the issuing bank shall certify that the underlying asset is ‘Export Credit’, in addition to the due
diligence required to be undertaken by the issuing and the purchasing bank as per the guidelines in
this regard.

18. Priority Sector Lending Certificates

The outstanding priority sector lending certificates bought by banks will be eligible for classification
under respective categories of priority sector provided the assets are originated by banks, are eligible
to be classified as priority sector advances and fulfil the Reserve Bank of India guidelines on Priority
Sector Lending Certificates issued vide Circular FIDD.CO.Plan.BC.23/04.09.001/2015-16 dated April
7, 2016.

19. Bank loans to MFIs for on-lending

(a) Bank credit to MFIs extended for on-lending to individuals and also to members of SHGs / JLGs
will be eligible for categorisation as priority sector advance under respective categories viz.,
Agriculture, Micro, Small and Medium Enterprises, Social Infrastructure [mentioned in paragraph
11(11.2)] and Others, provided not less than 85 percent of total assets of MFI (other than cash,
balances with banks and financial institutions, government securities and money market instruments)
are in the nature of “qualifying assets”. In addition, aggregate amount of loan, extended for income
generating activity, should be not less than 50 percent of the total loans given by MFIs.

(b) A “qualifying asset” shall mean a loan disbursed by MFI, which satisfies the following criteria:
(i) The loan is to be extended to a borrower whose household annual income in rural areas does not
+?9++:&.0.1 million while for non-),)#0&#)+#%&1'&%4",0:&$"'&+?9++:&.0.16 million.
(ii) !"#$&:"+%&$"'&+?9++:&.WD7DDDZ- in the first cycle #$:&.0.1 million in the subsequent cycles.
(iii) P"'#0&1$:+5'+:$+%%&"(&'4+&5"))"K+)&:"+%&$"'&+?9++:&.0.1 million.
(iv) P+$,)+&"(&0"#$&1%&$"'&0+%%&'4#$&2O&*"$'4%&K4+$&0"#$&#*",$'&+?9++:%&.MD7DDDZ- with right to
borrower of prepayment without penalty.

14 | P a g e
(v) The loan is without collateral.
(vi) Loan is repayable by weekly, fortnightly or monthly installments at the choice of the borrower.

(c) Further, the banks have to ensure that MFIs comply with the following caps on margin and interest
rate as also other ‘pricing guidelines’, to be eligible to classify these loans as priority sector loans.

(i) Margin cap: The margin cap should not exceed 10 percent for MFIs having loan portfolio
+?9++:1$8& .; billion and 12 percent for others. The interest cost is to be calculated on average
fortnightly balances of outstanding borrowings and interest income is to be calculated on average
fortnightly balances of outstanding loan portfolio of qualifying assets.
(ii) Interest cap on individual loans: With effect from April 1, 2014, interest rate on individual loans
will be the average Base Rate of five largest commercial banks by assets multiplied by 2.75 per
annum or cost of funds plus margin cap, whichever is less. The average of the Base Rate shall be
advised by Reserve Bank of India.
(iii) Only three components are to be included in pricing of loans viz., (a) a processing fee not
exceeding 1 percent of the gross loan amount, (b) the interest charge and (c) the insurance premium.
(iv)The processing fee is not to be included in the margin cap or the interest cap
(v) Only the actual cost of insurance i.e. actual cost of group insurance for life, health and livestock
for borrower and spouse can be recovered; administrative charges may be recovered as per IRDA
guidelines.
(vi) There should not be any penalty for delayed payment.
(vii) No Security Deposit/ Margin is to be taken.

(d) The banks should obtain from MFI, at the end of each quarter, a Chartered Accountant’s
Certificate stating, inter-alia, that the criteria on (i) qualifying assets, (ii) the aggregate amount of
loan, extended for income generation activity, and (iii) pricing guidelines are followed.

20. Monitoring of Priority Sector Lending targets

To ensure continuous flow of credit to priority sector, the compliance of banks will be monitored on
‘quarterly’ basis. The data on priority sector advances has to be furnished by banks at quarterly and
annual intervals as per the reporting formats prescribed vide Circular
FIDD.CO.Plan.BC.No.17/04.09.001/2016-17 dated October 6, 2016 on Priority Sector Lending –
Revised Reporting System.

21. Non-achievement of Priority Sector targets

Scheduled Commercial Banks having any shortfall in lending to priority sector shall be allocated
amounts for contribution to the Rural Infrastructure Development Fund (RIDF) established with
NABARD and other Funds with NABARD/NHB/SIDBI/ MUDRA Ltd. , as decided by the Reserve
Bank from time to time. The achievement will be arrived at the end of financial year based on the
average of priority sector target /sub-target achievement as at the end of each quarter.

15 | P a g e
While computing priority sector target achievement, shortfall / excess lending for each quarter will be
monitored separately. A simple average of all quarters will be arrived at and considered for
computation of overall shortfall / excess at the end of the year. The same method will be followed for
calculating the achievement of priority sector sub-targets. (Illustrative example given in Annex A)

The interest rates on banks’ contribution to RIDF or any other Funds, tenure of deposits, etc. shall be
fixed by Reserve Bank of India from time to time.

The misclassifications reported by the Reserve Bank’s Department of Banking Supervision would be
adjusted/ reduced from the achievement of that year, to which the amount of declassification/
misclassification pertains, for allocation to various funds in subsequent years.

Non-achievement of priority sector targets and sub-targets will be taken into account while granting
regulatory clearances/approvals for various purposes.

22. Common guidelines for priority sector loans

Banks should comply with the following common guidelines for all categories of advances under the
priority sector.

(i) Rate of interest

The rates of interest on bank loans will be as per directives issued by our Department of Banking
Regulation from time to time.

(ii) Service charges

No loan related and adhoc service charges/inspection charges should be levied on priority sector loans
,-&'"&.2/7DDDN&X$&'4+&9#%+&"(&+018150+&-)1")1'@&sector loans to SHGs/ JLGs, this limit will be applicable
per member and not to the group as a whole.

(iii) Receipt, Sanction/Rejection/Disbursement Register

A register/ electronic record should be maintained by the bank, wherein the date of receipt,
sanction/rejection/disbursement with reasons thereof, etc., should be recorded. The register/electronic
record should be made available to all inspecting agencies.

(iv) Issue of Acknowledgement of Loan Applications

Banks should provide acknowledgement for loan applications received under priority sector loans.
Bank Boards should prescribe a time limit within which the bank communicates its decision in
writing to the applicants.

******************

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 APPENDIX
LIST OF CIRCULARS CONSOLIDATED

Sr. Circular No. Date Subject

No.
1. FIDD.CO.Plan.BC.07/04.09.01/2018-19 July 12, 2018 Priority Sector Lending – Targets and
Classification: Lending to non-corporate farmers
– System wide average of last three years
2. FIDD.CO.Plan.BC.22/04.09.01/2017-18 June 19, 2018 Priority Sector Lending – Targets and
Classification
3. FIDD.CO.Plan.BC.18/04.09.01/2017-18 March 1, 2018 Priority Sector Lending – Targets and
Classification
4. FIDD.CO.Plan.BC.16/04.09.01/2017-18 September 21, 2017 Priority Sector Lending – Targets and
Classification: Lending to non-corporate farmers
– System wide average of last three years
5. FIDD.CO.Plan.BC.No.17/04.09.001/2016-17 October 6, 2016 Priority Sector Lending – Revised Reporting
System
6. FIDD.CO.Plan.BC.No.14/04.09.001/2016-17 September 1, 2016 Priority Sector Lending-Targets ad
Classifications: Lending to Non-corporate
Farmers – System Wide Average of last three
years
7. FIDD.CO.Plan.BC.No.10/04.09.001/2016-17 August 11, 2016 Priority Sector Lending Status for Factoring
Transactions
8. FIDD.CO.Plan.BC.No.8/04.09.001/2016-17 July 28, 2016 PSL-Targets and Classification – Bank loans to
MFIs for on-lending- Qualifying asset – Revised
loan limit
9. DBOD Mailbox clarification March 28, 2016 Bank loans to proprietorship under Priority Sector
10. DBOD Mailbox clarification March 17, 2016 Eligibility of IBPC as Priority Sector Asset
11. DBOD Mailbox clarification November 27, 2015 Bank loans to SHGs/ JLGs- Processing Charges
12. FIDD.CO.Plan.BC.13/04.09.01/2015-16 November 18, 2015 Priority Sector Lending-Targets and
Classification
13. DBOD Mailbox clarification November 3, 2015 >6+):)#('%&&,-'"&&./DDDZ- under PMJDY
accounts
14. DBOD Mailbox clarification September 7, 2015 Calculation of shortfall/ excess
15. DBOD Mailbox clarification August 14, 2015 Social Infrastructure and Bank loans to MFIs for
on-lending - Social Infrastructure
16. FIDD.CO.Plan.BC.08/04.09.01/2015-16 July 16, 2015 Priority Sector Lending –Targets and
Classification
17. DBOD Mailbox clarification June 26, 2015 Outstanding deposits with MUDRA Ltd. On
account of priority sector shortfall
18. DBOD Mailbox clarification June 12, 2015 Loans to Minority Communities
19. DBOD Mailbox clarification June 11, 2015 Loans to Custom Service Units
20. FIDD.CO.Plan.BC.54/04.09.01/2014-15 April 23, 2015 Priority Sector Lending-Targets and
Classification

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 Annex A

Priority Sector Target Achievement- Calculation of shortfall / excess

Illustrative example:

Tables No.1 and 2 below illustrate the method followed for computation of shortfall / excess in
priority sector target achievement at the end of the financial year under the revised PSL guidelines.

(Table 1)
B*",$'&1$&.&billion
Quarter ended PSL targets Priority Sector Amount Shortfall / Excess
Outstanding
June 3296.15 3169.38 -126.77
September 3088.26 3119.45 31.19
December 3176.94 3192.91 15.96
March 3245.60 3213.47 -32.13
Total 12806.98 12695.22 -111.75
Average 3201.74 3173.80 -27.93

(Table 2)
B*",$'&1$&.&billion
Quarter ended PSL targets Priority Sector Amount Shortfall / Excess
Outstanding
June 3296.15 3279.67 -16.48
September 3088.26 3123.78 35.51
December 3176.94 3272.25 95.30
March 3245.60 3213.15 -32.45
Total 12806.98 12888.86 81.88
Average 3201.74 3222.21 20.47

In the example given in Table - ;7&'4+&5#$A&4#%&"6+)#00&%4")'(#00&"(&.&2[.93 billion at the end of the

financial year. In Table – 27&'4+&5#$A&4#%&"6+)#00&+?9+%%&"(&.&2D.47 billion at the end of the financial
year.

The same method will be followed for calculating the achievement of quarterly and yearly priority
sector sub-targets.

Note: The computation of priority sector targets/sub-targets achievement will be based on the ANBC
or Credit Equivalent Amount of Off-Balance Sheet Exposures, whichever is higher, as at the
corresponding date of the preceding year.

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