SBI Economists Call for Priority Sector Lending Reforms to Boost Infrastructure Investment

The economists at SBI have urged the government and banking regulators to review the Priority Sector Lending (PSL) guidelines. Under the PSL framework, banks are required to allocate a portion of their lending to key sectors such as agriculture, MSMEs, education and housing.

The economists said many banks are unable to meet the required targets through regular lending. Instead, they are purchasing Priority Sector Lending Certificates (PSLCs) to fulfil the requirements. Trading in these certificates has increased sharply, rising from ₹1.8 lakh crore in FY18 to ₹12.2 lakh crore in FY25.

They also noted that banks prefer buying these certificates rather than investing in the Rural Infrastructure Development Fund (RIDF).

Infrastructure loans

SBI economists have recommended that infrastructure loans should be included under the Priority Sector Lending framework. They said India needs significant investment in roads, airports, ports and other infrastructure projects to achieve the Prime Minister’s Vision 2047 goals.

The economists added that India still lacks a strong bond market, making it important for banks to play a larger role in financing infrastructure. They suggested either granting all infrastructure loans Priority Sector Lending status or excluding them from certain PSL calculations to encourage greater lending.

Housing loans

The economists said rising property prices mean housing loan limits should be revised upwards.

They proposed increasing the PSL housing loan limit to:

• ₹1 crore in metropolitan cities.
• ₹75 lakh in non-metropolitan cities.

Education loans

The economists also pointed out that the cost of education in India is steadily increasing. They proposed raising the PSL eligibility limit for education loans to ₹50 lakh.

Renewable energy

SBI economists have also recommended increasing the PSL loan limit for renewable energy projects. They proposed raising the project loan limit from ₹35 crore to ₹100 crore.

For rooftop solar systems, they suggested increasing the individual loan limit from ₹10 lakh to ₹2 crore.

Conclusion

The SBI economists believe the current Priority Sector Lending guidelines require a comprehensive review. They said these changes would encourage banks to provide more funding for infrastructure, housing, education and renewable energy, supporting India’s long-term economic growth.