SBI Research has recommended modernizing India's Priority Sector Lending framework to include climate finance, ESG, and electric vehicles. The report suggests raising loan limits for housing, education, and renewable energy to reflect current economic needs. This move aims to align banking credit with India's 2047 growth goals while building on current lending performance, where banks have already exceeded the 40% target.
SBI Research has called for a major update to the Priority Sector Lending (PSL) framework, a system originally introduced in 1972 to ensure credit reaches underserved parts of the economy. While banks are currently performing well, having already surpassed the mandated 40% of Adjusted Net Bank Credit (ANBC) with provisional FY26 estimates reaching approximately 45%, the report argues that the current rules no longer reflect the modern needs of India’s economy.
Expanding Credit into New Growth Areas
The research proposes integrating emerging sectors into the PSL scope to better support the country's long-term development. Specifically, it suggests that climate finance, infrastructure projects, and the electric vehicle (EV) ecosystem should qualify as priority lending. By creating a dedicated category for Climate Sustainability Finance, the report aims to encourage more capital into green bonds, ESG-focused investments, and other sustainability initiatives. This shift is intended to channel bank funds into sectors that are critical for achieving India’s 'Viksit Bharat 2047' vision.
Proposed Changes to Lending Limits
To keep pace with rising costs and inflation, the report suggests significant increases to existing loan thresholds. For renewable energy, it proposes raising the power generation project lending cap from ₹35 crore to ₹100 crore. Individual rooftop solar loan limits are suggested to jump from ₹10 lakh to ₹2 crore.
Similarly, the report addresses the evolving real estate and education landscape. It recommends increasing the eligibility limit for housing loans to ₹1 crore in metro cities and ₹75 lakh in non-metro areas. This adjustment recognizes that average home loan sizes have already risen to between ₹45 lakh and ₹50 lakh. Furthermore, the limit for education loans is proposed to double from ₹25 lakh to ₹50 lakh, acknowledging the higher costs of quality education today.
Reforming Infrastructure and Rural Funding
The report also suggests technical changes to how infrastructure financing and rural funds are treated. It advocates for bringing infrastructure loans entirely under the PSL umbrella or exempting them from ANBC calculations. This would treat them similarly to long-term infrastructure bonds, potentially helping to grow the domestic bond market. Additionally, the research proposes changes to how banks interact with the Rural Infrastructure Development Fund (RIDF). It recommends treating these deposits as more favorable assets by exempting them from certain risk-weight and capital adequacy requirements. This could make it more attractive for banks to participate in rural development funding compared to the current practice of buying Priority Sector Lending Certificates (PSLCs). Investors will now monitor whether the Reserve Bank of India adopts these suggestions, as such changes could significantly alter how banks allocate their loan portfolios and manage their capital requirements.