With effect from 1st April 2025, the RBI intends to update extensively its Priority Sector Lending (PSL) guidelines to benefit millions of borrowers, such as small businesses; farmers; home buyers; and women entrepreneurs, so that credit becomes accessible and affordable.
What is meant by Priority Sector Lending (PSL)?
According to a guideline issued by the RBI, the bank is required to provide a particular percentage of its loans to sectors regarded as key: Agriculture, MSMEs, Education, Housing, and Renewable Energy. These sectors are crucial to the economic growth of India, and yet, many of them find it extremely difficult to raise funding.
With the new PSL guidelines for 2025, the RBI intends to promote financial inclusion, second sustainable development, and enhance credit flow to the under-banked section of the populace.
Modifications to RBI PSL Rules, 2025
Increased loan limits for affordable housing.
The RBI has increased the limits for housing loans qualifying under PSL to make homeownership a possibility for middle and lower-income families. The revised categories include:
- For metropolitan areas, ₹25 lakh for homes (previously ₹20 lakh).
- For non-metro cities, ₹15 lakh for homes (previously ₹10 lakh).
A new category for affordable housing projects was added to further encourage real estate development.
This change will enable many Indians to purchase their dream homes, all the while propelling growth in the real estate sector.
Support for MSMEs and Small Businesses
Micro, Small, and Medium Enterprises constitute the backbone of the Indian economy, contributing nearly 30 per cent to the GDP. With the new PSL regulations, MSMEs will now be encouraged to avail loans on better terms and rates.
Furthermore, the RBI has widened the criteria for extending loans to women entrepreneurs, ensuring that they have sufficient financial support to expand their core businesses.
Support for Renewable Energy Projects
To be instrumental in achieving the green energy objectives set forth by India, the RBI has increased the loan ceiling for renewable energy projects from the previous ₹30 crore to ₹35 crore. This will spur investments into solar, wind, and hydropower projects that will aid India in realizing the 500 GW renewable energy goal set for 2030.
Loans for Home Renovation Made Easier
Many homeowners find it hard to finance the upkeep and renovation of their homes owing to steep costs. Now, the RBI has increased the loan amount based on which renovation of a home is possible so that customers can afford to renovate the old or dilapidated structure. This will create avenues for banks and help families in making their living conditions better.
Enhanced support for weaker sections
The amended PSL guidelines have broadened the list of eligible borrowers under the term “weaker sections”. Moreover, Urban Cooperative Banks (UCBs) will now adhere to a higher PSL target of 60% of their adjusted net bank credit (ANBC).
Of big significance, the ceiling for loans for individual women borrowers would be removed, thus allowing more access for women to funding for business education and housing.