Topic 7
🟢 Lite — Quick Review (1h–1d)
Rapid summary for last-minute revision before your exam.
- PSL (Priority Sector Lending): Banks must lend 40% of their Adjusted Net Credit to priority sectors; includes Agriculture, MSMEs, Education, Housing, Social Infrastructure, Renewable Energy
- Sub-targets: 8% of ANBC to small farmers (DAP); 7.5% to micro enterprises; 3% to weaker sections
- KCC (Kisan Credit Card): Provides farmers with affordable credit; covers production, investment, consumption needs; interest subsidy at 3% for prompt repayers
- PMMY (Pradhan Mantri Mudra Yojana): Loans up to ₹10 lakh to non-corporate, non-farm enterprises; three categories: Shishu (< ₹50k), Kishore (₹50k-5 lakh), Tarun (₹5-10 lakh)
- DBT (Direct Benefit Transfer): Government subsidies transferred directly to beneficiaries’ bank accounts; cuts leakages; ensures targeting
- ⚡ Financial inclusion is measured by the Jan Dyan — PMJDY account has become India’s primary financial inclusion tool with 50+ crore accounts
🟡 Standard — Regular Study (2d–2mo)
Standard content for students with a few days to months.
Priority Sector Lending and Financial Inclusion
Priority Sector Lending (PSL) is a unique Indian policy instrument that directs banks to lend to underserved sectors of the economy. It is a critical topic for SBI PO exams.
Priority Sector Lending — Overview
Background
PSL was introduced in 1968 as part of social banking strategy to ensure equitable distribution of credit and reduce regional/sectoral imbalances.
Definition
Scheduled Commercial Banks (SCBs) must lend a specified percentage of their Adjusted Net Bank Credit (ANBC) or Credit Equivalent of Off-Balance Sheet Exposures (CEOBE), whichever is higher, to Priority Sectors.
Current PSL Targets
Overall Target: 40% of ANBC for all SCBs
Sub-targets (for Domestic Banks):
- Agriculture: 18% of ANBC (with sub-targets for small farmers)
- Micro, Small and Medium Enterprises (MSMEs): 7.5% of ANBC (with sub-targets)
- Exports: 8% of ANBC (for export credit)
- Weaker sections: 10% of ANBC
For Foreign Banks:
- 40% target is not mandatory but applicable to their domestic operations
Categories of Priority Sector
1. Agriculture
Target: 18% of ANBC
Sub-targets:
- Small and Marginal Farmers (DAP — Direct Assignment Program): 8% of ANBC
- Land Purchase/Development loans: Also counted
- Agriculture Infrastructure: Storage, cold chains, irrigation
Definition of Farm Activities:
- Crop production
- Allied activities (dairy, poultry, fisheries, bee-keeping, sericulture)
- Aggregate exposure limits apply
Bank Credit to Agriculture:
- Production credit (seasonal agricultural operations)
- Investment credit (farm machinery, land development)
- Agriculture infrastructure
2. MSMEs (Micro, Small, and Medium Enterprises)
Definition (MSME Act 2006):
| Enterprise | Investment Limit | Annual Turnover Limit |
|---|---|---|
| Micro | < ₹1 crore (manufacturing); < ₹2 crore (services) | < ₹5 crore |
| Small | < ₹10 crore (manufacturing); < ₹5 crore (services) | < ₹50 crore |
| Medium | < ₹50 crore (manufacturing); < ₹20 crore (services) | < ₹250 crore |
Revised Definition (Post-COVID, 2022):
- Investment and turnover limits combined
- No separate investment limit for medium enterprises
- Simpler: If turnover < ₹250 crore, qualifies as MSME
PSL Sub-targets for MSMEs:
- Micro enterprises: 7.5% of ANBC (within MSME target)
- Loans up to ₹20 lakh to micro enterprises without collateral
Types of MSME Credit:
- Manufacturing enterprises
- Service enterprises
- Khadi and Village Industries
- Cottage industries
3. Education
- Education loans for studies in India and abroad
- Loan limit: ₹10 lakh (India), ₹20 lakh (abroad) for studies
- Includes vocational studies, skill development
4. Housing
- Loans up to ₹35 lakh in metro/urban areas and ₹25 lakh in rural areas
- For purchase/construction/repair of houses
- Subject to overall housing loan limits
5. Social Infrastructure
- Schools, healthcare facilities, sanitation, drinking water
- Renewable energy: Solar lights, bio-gas plants, windmills
- Not-for-profit hospitals (with certain conditions)
6. Others
- Security papers, handloom, artisan credit -贡献 to SHG (Self Help Groups) bank linkage program
- Vulnerable groups: DAP beneficiaries, disabled, SC/ST
Kisan Credit Card (KCC)
Background
Launched in 1998; provides affordable credit to farmers.
Features
- Credit Limit: Based on land holding, cropping pattern, and farm economics
- Covers: Production credit (crop loans) + Investment credit + Consumption needs
- Interest Rate: KCC loans up to ₹3 lakh at 4% p.a. (with 3% subsidy for prompt repayers)
- Collateral-free: Loans up to ₹1.6 lakh are collateral-free (RBI mandate)
- Credit Period: 5 years (renewable)
- Flexibility: Can withdraw any amount within limit; interest charged only on amount used
KCC Saturation
- Over 11 crore KCC cards issued
- Covers all PM-KISAN beneficiaries
- Auto-conversion of Kisan Credit Cards to ATM-cum-debit cards
Pradhan Mantri MUDRA Yojana (PMMY)
Overview
Launched April 8, 2015; provides collateral-free loans to non-corporate, non-farm micro and small enterprises.
Three Categories
| Category | Loan Limit | Purpose |
|---|---|---|
| Shishu | Up to ₹50,000 | Startup, basic needs |
| Kishore | ₹50,001 - ₹5 lakh | Growing businesses |
| Tarun | ₹5 lakh - ₹10 lakh | Established enterprises |
Features
- Loans are collateral-free
- Interest rates as per credit risk assessment
- No upper age limit for borrowers
- Loans for income-generating activities (manufacturing, trading, services)
- Loans for both new and existing enterprises
Progress
- Over 40 crore loans sanctioned since launch
- ~50% loans to women borrowers
- Significant contribution to financial inclusion
Self Help Group — Bank Linkage Programme (SHG-BLP)
India’s SHG-Bank Linkage Programme is the world’s largest microfinance programme.
Model
- Women form SHGs (10-20 members)
- SHGs save regularly (monthly meetings)
- After 6-12 months of saving, SHG can access bank credit
- Loans at relatively lower interest rates
- Group guarantee mechanism reduces default risk
Progress
- Over 1.3 crore SHGs covering ~15 crore women members
- NABARD is the implementing agency for SHG-BLP
- Linkage through banking correspondents, bank branches
Direct Benefit Transfer (DBT)
Concept
DBT transfers government benefits directly to beneficiaries’ bank accounts, eliminating middlemen and leakages.
How it Works
- Beneficiary identified by government department
- Aadhaar seeding for identification
- Bank account linked to beneficiary’s Aadhaar
- Subsidy/benefit credited directly to account
- Beneficiary uses amount as needed
Major DBT Schemes
- PAHAL (Pratyaksh Hanstantrit Labs): LPG subsidy (disbursed directly to beneficiaries; previously paid to oil marketing companies)
- PM Kisan: Income support to farmers (₹6,000/year)
- MGNREGA wages: Wage payment directly to worker accounts
- Scholarships: Education scholarships
- PMJDY: Insurance claim settlements
Impact
- Reduced corruption and leakages
- Improved targeting
- Reduced time for benefits to reach beneficiaries
- Enabled Jan Dhan accounts expansion
Financial Inclusion Index (FI-Index)
RBI publishes the Financial Inclusion Index annually.
Dimensions (Five)
- Banking Services: Branch penetration, ATM density, deposit accounts
- Digital Financial Services: UPI transactions, mobile banking, insurance penetration
- Consumer Empowerment: Financial literacy, awareness
- Access: Rural vs urban access, gender gap
- Usage: Active vs dormant accounts
Index Value
- FI-Index for 2023: 60.3 (out of 100)
- Improving trend but significant gaps remain
🔴 Extended — Deep Study (3mo+)
Comprehensive coverage for students on a longer study timeline.
PSL Monitoring and Compliance
Computation: PSL calculated quarterly Shortfall: If PSL target not met, banks must deposit shortfall with RBI’s Deposits with NABARD/RIDF (Rural Infrastructure Development Fund) RIDF: NABARD manages RIDF; funds rural infrastructure (roads, bridges, irrigation)
PSL Scoring: PSL performance is part of bank scoring/evaluation
Stand-Up India
Launched April 2016.
- Loans between ₹10 lakh and ₹1 crore
- For SC/ST and women entrepreneurs
- At least one woman borrower per bank branch
- For greenfield enterprises (first-time entrepreneurs)
Survey on Formal and Informal Employment
National Sample Survey Office (NSSO):
- Periodic Labour Force Survey (PLFS) — quarterly and annual
- Reports: Employment/Unemployment Rate, Labour Force Participation Rate, Worker Population Ratio
Periodic Labour Force Survey (PLFS):
- Quarterly data for urban areas
- Annual data for all India
- Used to track unemployment and underemployment
Key Terms:
- Labour Force: All employed + unemployed persons
- Unemployment Rate: Unemployed / Labour Force
- Worker Population Ratio: Workers / Population
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