Module: General Practice
Q18: Consider the following statements regarding Priority Sector Lending (PSL) targets for MSMEs:
Assertion (A): Domestic Commercial Banks are mandated to ensure that 7.5 percent of their Adjusted Net Bank Credit is specifically lent to Micro Enterprises.
Reason (R): The Reserve Bank of India aims to prevent the crowding out of the smallest entities by larger Small or Medium enterprises within the overall MSME target.
Reason (R): The Reserve Bank of India aims to prevent the crowding out of the smallest entities by larger Small or Medium enterprises within the overall MSME target.
✅ Correct Answer: A
Both the Assertion and Reason are true, and R correctly explains A. Under RBI Master Directions updated in 2025, while the overall PSL target is 40 percent, there is a specific sub-target of 7.5 percent of Adjusted Net Bank Credit (ANBC) reserved exclusively for Micro Enterprises.
The logic is that without this specific sub-target, banks might prefer lending to larger Medium enterprises to meet their MSME quotas, leaving the smallest Micro units without credit.
This reservation ensures credit flow to the bottom of the pyramid.
The logic is that without this specific sub-target, banks might prefer lending to larger Medium enterprises to meet their MSME quotas, leaving the smallest Micro units without credit.
This reservation ensures credit flow to the bottom of the pyramid.