State Bank of India economists have recommended classifying infrastructure loans as Priority Sector Lending (PSL) to boost long-term funding. The proposal also suggests raising eligibility limits for housing, education, and renewable energy loans to keep pace with rising costs.
Economists at State Bank of India have proposed a major update to Priority Sector Lending (PSL) rules, a move that could reshape how banks allocate credit in India. Currently, banks are required to direct 40% of their Adjusted Net Bank Credit (ANBC) toward sectors identified as priority, such as agriculture and small businesses. The new proposal suggests that infrastructure loans should now be included in this category, potentially unlocking significant liquidity for long-term national projects.
Challenges in Meeting PSL Targets
The report points to a heavy reliance on Priority Sector Lending Certificates (PSLCs), which allow banks to trade their surplus or deficit in meeting these mandates. The trading volume of these certificates has increased sharply from ₹1.8 lakh crore in FY18 to ₹12.2 lakh crore in FY25. The economists noted that once certificate purchases and mandatory contributions to the Rural Infrastructure Development Fund are excluded, many banks face difficulty in hitting their 40% target directly. By including infrastructure in the priority list, banks could channel funds directly into capital-intensive projects rather than relying on certificate trading.
Proposed Changes to Loan Limits
Beyond the infrastructure push, the proposal seeks to modernize eligibility thresholds for several sectors that have seen significant inflation in recent years. For housing, the report recommends raising the loan limits for PSL eligibility to ₹1 crore in metropolitan regions and ₹75 lakh in other areas. This change acknowledges the steady increase in property prices in major cities.
Education and renewable energy are also in focus. The economists suggested doubling the PSL-eligible education loan limit to ₹50 lakh to cover rising costs. For the renewable energy sector, the jump is even more pronounced: the limit for project loans would increase from ₹35 crore to ₹100 crore, while individual rooftop solar loan limits would rise from ₹10 lakh to ₹2 crore.
Implications for Investors
If these recommendations are accepted by regulators, it could provide a boost to companies in the infrastructure and renewable energy sectors by lowering their cost of borrowing. Banks would gain more flexibility in meeting their regulatory requirements, potentially reducing the need to buy certificates from the market. For investors, the key monitorable will be the Reserve Bank of India’s response to these suggestions and whether any changes to the current PSL framework are formally adopted in upcoming policy circulars. The shift could fundamentally alter the credit flow dynamics across several capital-intensive industries.