Module: | Capital Adequacy, Basel Norms & Monetary Policy
Q1: Consider the following statements regarding the Overall and Sectoral Priority Sector Lending (PSL) Target Percentages:
1. Regional Rural Banks are mandated to achieve a 75% overall priority sector target, while Small Finance Banks now have a revised target of 60% of ANBC or CEOBE, whichever is higher.
2. The Agriculture sector target is uniformly set at 18% of ANBC, within which a strict 10% sub-target is exclusively prescribed for Small and Marginal Farmers.
3. Primary (Urban) Co-operative Banks must achieve an overall priority sector lending target of exactly 60% of ANBC or CEOBE.
4. Domestic Commercial Banks must achieve a Micro Enterprises sub-target of 10% and a Weaker Sections sub-target of 15% of ANBC.
Which of the statements given above is/are correct?
2. The Agriculture sector target is uniformly set at 18% of ANBC, within which a strict 10% sub-target is exclusively prescribed for Small and Marginal Farmers.
3. Primary (Urban) Co-operative Banks must achieve an overall priority sector lending target of exactly 60% of ANBC or CEOBE.
4. Domestic Commercial Banks must achieve a Micro Enterprises sub-target of 10% and a Weaker Sections sub-target of 15% of ANBC.
Which of the statements given above is/are correct?
✅ Correct Answer: A
The correct answer is A. Statement 1 is correct: As per the June 2025 RBI revisions, Small Finance Banks (SFBs) now have a reduced overall PSL target of 60%, while Regional Rural Banks (RRBs) remain at 75%. Statement 4 is incorrect: Domestic Commercial Banks have a Micro Enterprises sub-target of 7.5% and a Weaker Sections sub-target of 12% of ANBC.
The 15% Weaker Sections target is specifically applicable only to RRBs.
Statements 2 and 3 accurately reflect the Master Direction statutory limits, including the 18% agriculture target with a strict 10% SMF sub-target, and the 60% overall target for UCBs.
The 15% Weaker Sections target is specifically applicable only to RRBs.
Statements 2 and 3 accurately reflect the Master Direction statutory limits, including the 18% agriculture target with a strict 10% SMF sub-target, and the 60% overall target for UCBs.
🧠 Real-World Scenario:
Imagine Village First RRB (a Regional Rural Bank) has exactly ₹100 Crore in total lending funds for the year. Suddenly, a massive city corporation wants to borrow ₹80 Crore in one single loan, which would be very easy for the bank to process.
According to the rules, the bank must say no. Because they are an RRB, they have a strict target of 75%. This means exactly ₹75 Crore MUST be lent to priority sectors. Out of that money, they are legally forced to give 15% (₹15 Crore) specifically to Weaker Sections and 10% (₹10 Crore) strictly to Small and Marginal Farmers (SMF).
This means the bank cannot ignore vulnerable borrowers to chase easy corporate money; they must meet their strict rural lending quotas first.