SBI seeks priority sector status for all infra loans to boost investment

State Bank of India has proposed granting priority sector status to all infrastructure loans or excluding them from ANBC calculations to encourage higher infrastructure investment

A report by State Bank of India (SBI) has proposed that all infrastructure loans be accorded priority sector status to boost investment in infrastructure. Alternatively, it suggested exempting such loans from the calculation of adjusted net bank credit (ANBC) for priority sector lending (PSL) purposes.

 

Reserve Bank of India (RBI) norms mandate that banks lend 40 per cent of ANBC to the priority sector. “We need huge investments in infrastructure to achieve the Prime Minister’s Vision 2047. Long-term resources available for the same are limited in the absence of a vibrant bond market,” the report said. “However, infrastructure funding undertaken by banks from their own resources is not allowed to be classified under PSL,” it said.

 

The report recommended an upward revision in loan limits across several PSL categories, including housing, education, renewable energy, social infrastructure, and bank lending to non-banking financial companies (NBFCs) for on-lending.

 

Among its key suggestions, it proposed increasing the PSL limit for renewable energy projects to ₹100 crore from ₹35 crore, raising the home loan eligibility ceiling to ₹1 crore in metro centres and ₹75 lakh elsewhere, and doubling the education loan limit eligible for PSL classification to ₹50 lakh from ₹25 lakh. It also recommended increasing the social infrastructure loan limit to ₹25 crore and enhancing the per-borrower cap on bank loans to NBFCs for on-lending to ₹25 lakh for agriculture and ₹50 lakh for other sectors.

 

SBI said the existing PSL framework, introduced by the RBI in 1972 to improve credit access for underserved sectors, has largely succeeded in helping banks meet the mandatory lending target. However, it argued that the framework now requires recalibration to accommodate emerging financing needs linked to infrastructure development, the energy transition, and sustainable growth.

 

The report observed that banks have consistently met the overall PSL target of 40 per cent of ANBC since 2017-18 (FY18). Overall PSL is estimated at 45 per cent of ANBC in 2025-26, up from 43.6 per cent in 2024-25 (FY25). At the same time, trading volumes in PSL certificates (PSLCs) have risen sharply to ₹12.2 trillion in FY25 from ₹1.8 trillion in FY18.

 

However, SBI pointed out that the headline achievement masks growing reliance on inorganic avenues such as PSLCs and the Rural Infrastructure Development Fund (RIDF). Excluding these components, banks have been unable to meet the 40 per cent target, with organic PSL falling to 34.4 per cent of ANBC in FY25, according to the report.

 

The report also sought reforms to the RIDF framework, including exempting RIDF deposits from risk-weight and capital adequacy calculations and rationalising penal charges. It argued that banks currently find it more profitable to purchase PSLCs than invest in the RIDF.