Priority sector lending: Missing the woods for the trees?

Tweaking existing guidelines will help align priority sector lending with current realities

The current banking and economic situation demands a fresh round of thinking regarding priority sector lending (PSL) guidelines. In FY16 the Reserve Bank of India (RBI) initiated two significant steps. First, it revamped PSL norms by including some new sectors such as social infrastructure, renewable energy and medium enterprises among others. Trends indicate that barring renewable energy and to some extent trade, credit to new sectors has not shown any significant expansionary trend. Second was the introduction of the scheme of priority sector lending certificates (PSLC) to facilitate the achievement of PSL targets by banks. This is to incentivise banks