Private banks achieve priority sector targets for first time in FY'24

For the first time, private sector banks as a group met priority sector lending targets including sub-targets for major heads in 2023-24, particularly in agriculture, showed central bank data. Although all bank groups managed to achieve their stipulated overall targets and sub targets, private sector banks did better than public sector counterparts.

For public sector, private and foreign banks, the target is 40% of adjusted net bank credit (ANBC) or credit equivalent of off-balance sheet exposure (CEOBE), whichever is higher, for small finance banks the target is higher at 75%.

One of the reasons for the private sector to achieve their priority sector target Is that these banks are now allowed to invest in priority sector lending certificates (PSLCs). These are issued against banks’ priority sector loans under various sub-targets and general categories. Banks use PSLCs to guard against shortfalls.

The total trading volume of PSLCs climbed 26% in FY24, primarily led by PSLC-General. Among the four PSLC categories, the small and marginal farmers category registered the highest trading volume, partly reflecting specialisation by a few banks in lending to this category of borrowers and the inability of other banks to meet sub-targets through direct lending, the RBI said in its report on Trends and Progress of Banking.

In the past five years, private sector banks have emerged as major sellers of PSLCs. In FY24, they accounted for 49% of total sales as compared with 21% in the case of PSBs, the RBI said.