CII seeks reforms to India’s priority sector lending framework

New Delhi, Dec 22 (PTI) Industry body CII has proposed reforms to India’s Priority Sector Lending (PSL) framework, suggesting including emerging and high-impact sectors such as digital infrastructure, green initiatives, healthcare and innovative manufacturing.

The chamber argued that current Development Finance Institutions (DFIs) like SIDBI and NaBFID (National Bank for Infrastructure and Development Finance) have been excluded as they have designated financing units and recommended setting up a high-level committee to review the revision of PSL norms , and explore whether any new DFIs are needed to meet the needs of some emerging industries.

Priority Sector Lending is a policy instrument designed to ensure adequate financial support for key sectors critical to national development. As mandated by the Reserve Bank of India (RBI), the PSL requires banks to allocate a certain percentage of lending to sectors such as agriculture, education, housing and small industries.

The framework ensures equitable credit distribution and promotes socioeconomic growth in underserved areas.

Despite the great success of the PSL framework, periodic recalibration is required to remain relevant. This realignment is critical to ensure optimal allocation of financial resources, in line with our vision of Viksit Bharat 2047, CII said.

For example, although agriculture currently accounts for 14% of GDP, its PSL allocation remains at 18%, the same as when the GDP share exceeded 30%.

Likewise, the chamber noted that sectors such as infrastructure and innovative manufacturing lack sufficient PSL attention despite their potential to drive economic growth.

Chandrajit Banerjee said: “The contribution of sectors such as agriculture to GDP has fallen from 30% in the 1990s to around 14% currently.

Therefore, it is time to review the Priority Sector Lending (PSL) framework every 3-4 years to align with emerging priorities and PSL allocations should be aligned with GDP contribution and sectoral growth potential. For example, we could consider including emerging and high-impact industries including digital infrastructure, green initiatives, healthcare, and innovative manufacturing. ”