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 has proposed that all infrastructure loans be accorded priority sector status to boost investment in infrastructure or, alternatively, that such loans be excluded from the calculation of adjusted net bank credit (ANBC) for priority sector lending (PSL).

 

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 PM's vision for 2047. Long-term resources available for the same are limited in the absence of a vibrant bond market," the report said.

 

"However, infrastructure funding done 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 Rs 100 crore from Rs 35 crore, raising the home loan eligibility ceiling to Rs 1 crore in metro centres and Rs 75 lakh elsewhere, and doubling the education loan limit eligible for PSL classification to Rs 50 lakh from Rs 25 lakh. It also recommended increasing the social infrastructure loan limit to Rs 25 crore and enhancing the per-borrower cap on bank loans to NBFCs for on-lending to Rs 25 lakh for agriculture and Rs 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, energy transition and sustainable growth.

 

The report noted that banks have consistently met the overall PSL target of 40 per cent of ANBC since FY18. Overall priority sector lending is estimated at 45 per cent of ANBC in FY26, up from 43.6 per cent in FY25. At the same time, trading volumes in Priority Sector Lending Certificates (PSLCs) have risen sharply to Rs 12.2 trillion in FY25 from Rs 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 in the RIDF framework, including exemption of RIDF deposits from risk weight and capital adequacy calculations and rationalisation of penal charges, arguing that banks currently find it more profitable to purchase PSLCs than invest in RIDF.