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Priority Sector Lending (PSL) Simplified

1. What is Priority Sector Lending?

  • Priority Sector Lending (PSL) means giving a fixed minimum % of bank loans to certain important sectors of the economy.
  • These sectors are called Priority Sectors because they are important for national growth, but they often do not get enough credit from banks.

In simple words:
➡️ RBI forces banks to give loans to needy sectors, even if the profit is less.

2. Why PSL is Needed?

  • To ensure equal growth across all sectors
  • To provide credit to poor and weaker sections
  • To support agriculture, small businesses, education, and housing
  • To reduce dependence on moneylenders
  • To support financial inclusion

3. Who Decides PSL Rules?

  • Reserve Bank of India (RBI)
  • PSL rules are discussed with Government of India, then implemented by RBI.

4. Sectors Covered Under PSL

Here are the 8 Priority Sectors:

Priority SectorWhat it Includes (Simple Explanation)
1. AgricultureCrop loans, farm investments, allied activities (dairy, poultry, fishery)
2. MSME (Micro, Small & Medium Enterprises)Small factories, workshops, service units, traders
3. Export CreditLoans to exporters
4. EducationEducation loans to students
5. HousingAffordable housing loans
6. Social InfrastructureSchools, hospitals, sanitation projects
7. Renewable EnergySolar, wind, biomass projects
8. Others (Weaker Sections)SC/ST, SHGs, JLGs, small farmers, etc.

5. PSL Targets

A. Scheduled Commercial Banks (SCBs)

(Like SBI, PNB, HDFC, ICICI, Bank of Baroda, etc.)

PSL CategoryTarget
Overall PSL40% of Adjusted Net Bank Credit (ANBC)
Agriculture18% of ANBC
→ out of which Small & Marginal Farmers10%
Weaker Sections12%
MSMENo fixed % after 2013, but part of 40% target

B. Small Finance Banks (SFBs)

CategoryTarget
Overall PSL75% of ANBC

C. Regional Rural Banks (RRBs)

CategoryTarget
Overall PSL75% of ANBC

6. Key Terms

1. ANBC (Adjusted Net Bank Credit)

  • The base on which PSL percentages are calculated.
  • It means Net Bank Credit after certain adjustments (like bills purchased, off-balance items).

2. Weaker Sections

Includes:

  • Small & Marginal Farmers
  • SC/ST
  • SHGs & JLGs
  • Artisans
  • People with income below certain limits
  • Minority communities

3. Direct vs Indirect Agriculture Credit

  • Direct Agriculture: Loan given directly to farmers
    (example: crop loan, KCC)
  • Indirect Agriculture: Loan to institutions that support agriculture
    (example: loan to FPO that buys seeds/equipment)

7. What Happens If Banks FAIL to Meet PSL Targets?

If banks cannot meet the PSL targets, they must:

1. Put money into RIDF (Rural Infrastructure Development Fund)

  • Maintained by NABARD
  • Low-interest deposit
  • A kind of penalty for banks

2. Buy PSLCs (Priority Sector Lending Certificates)

  • A tradable certificate
  • Example:
    • Bank A has excess agriculture lending
    • Bank B has less agriculture lending
    • Bank B buys PSLC from Bank A to meet target

3. Their performance rating becomes weaker

  • Affects RBI supervision
  • Impacts branch expansion approvals

8. Priority Sector Lending Certificates (PSLCs)

PSLCs work like “credit score sharing”.

  • Banks that have excess PSL can sell certificates.
  • Banks that are short of PSL can buy these certificates.

Important:
➡️ No actual loan is transferred. Only the achievement is traded.

9. Sub-Targets Within Agriculture

CategoryTarget
Total Agriculture18% of ANBC
Small & Marginal Farmers (SMFs)10%

SMFs = Farmers with less than 2 hectares of land.

10. Loans That QUALIFY Under PSL

A. Agriculture

  • Kisan Credit Card (KCC)
  • Crop production loans
  • Tractor loans
  • Dairy, poultry, fishery loans

B. MSME

  • Small manufacturing units
  • Artisan shops
  • Small traders
  • Women entrepreneurs

C. Education

  • Student loans up to ₹10 lakh (India)
  • Up to ₹20 lakh (abroad)

D. Housing

  • Loans for building / buying houses up to specified limits under “Affordable Housing”

E. Renewable Energy

  • Solar pumps
  • Biogas units
  • Solar panels on rooftops

11. Loans That DO NOT Count Under PSL

  • Loans to big corporates
  • High-value housing loans
  • Luxury car loans
  • Personal loans
  • Credit cards (except specific small-ticket variants)

12. Why PSL is Important for India?

Because it helps:

  • Farmers
  • Rural sectors
  • Small industries
  • Students
  • Poor households
  • Renewable energy projects

➡️ This ensures balanced, inclusive, and sustainable growth.

13. Common Exam Questions

  1. What is the PSL agriculture target for SCBs?
    ➡️ 18% of ANBC
  2. What is the SMF sub-target?
    ➡️ 10%
  3. PSL target for RRBs and SFBs?
    ➡️ 75% of ANBC
  4. What is RIDF?
    ➡️ Rural Infrastructure Development Fund (maintained by NABARD)
  5. Who regulates PSL?
    ➡️ RBI
  6. What are PSLCs?
    ➡️ Tradable certificates to meet PSL targets
  7. ANBC full form?
    ➡️ Adjusted Net Bank Credit

14. Quick Memory Trick

A–M–E–H–S–R–W

A – Agriculture
M – MSME
E – Education
H – Housing
S – Social Infrastructure
R – Renewable Energy
W – Weaker Sections

These are your PSL sectors.

15. Final Summary

  • PSL = RBI rule that banks must lend to important sectors
  • SCBs → 40% PSL; RRBs/SFBs → 75% PSL
  • Agriculture target = 18%
  • SMF target = 10%
  • Weaker sections = 12%
  • Failure → Deposit shortfall in RIDF or buy PSLCs
  • Goal → Financial inclusion + balanced growth

MCQs — Priority Sector Lending (PSL)

A. Basic Concepts (1–10)

  1. What does PSL stand for?
    A. Public Sector Lending
    B. Priority Sector Lending
    C. Private Sector Loans
    D. Primary Sector Loans
    Answer: B.
    Explanation: PSL = Priority Sector Lending — banks must allocate a portion of their lending to priority sectors.
  2. Who issues the rules/guidelines for Priority Sector Lending in India?
    A. SEBI
    B. NABARD
    C. RBI
    D. Ministry of Commerce
    Answer: C.
    Explanation: RBI frames and issues PSL guidelines; NABARD & others implement aspects.
  3. Which of the following is NOT a priority sector under PSL?
    A. Agriculture
    B. MSME
    C. High-value corporate loans (>₹100 crore)
    D. Renewable energy
    Answer: C.
    Explanation: Large corporate loans are not priority sector.
  4. PSL’s main objective is to:
    A. Promote only urban lending
    B. Ensure credit flow to sectors underserved by the market
    C. Increase bank profits only
    D. Stop lending to agriculture
    Answer: B.
    Explanation: PSL ensures inclusive credit flow.
  5. Which of these best describes ANBC?
    A. Adjusted Net Bank Credit — used as base for PSL targets
    B. Aggregate Net Business Credit — rewards banks
    C. Adjusted Net Borrowers Count — counts borrowers
    D. Average Net Bank Credit — interest measure
    Answer: A.
    Explanation: ANBC (Adjusted Net Bank Credit) is the base for calculating PSL targets.
  6. Direct agriculture lending means:
    A. Loans given to agro-processing companies abroad
    B. Loans given directly to farmers (e.g., crop loans)
    C. Loans to large industrial agri-exporters only
    D. None of the above
    Answer: B.
    Explanation: Direct agriculture lending goes straight to farmers.
  7. Which is an example of indirect agriculture lending?
    A. Kisan Credit Card to a farmer
    B. Loan to a warehouse infrastructure company that stores farm produce
    C. Short-term loan to a fisher for nets
    D. Tractor loan to a farmer
    Answer: B.
    Explanation: Loan to an enterprise supporting agriculture is indirect lending.
  8. Which of the following is a reason for PSL?
    A. Increase concentration of credit in metros
    B. Encourage lending to productive & needy sectors for inclusive growth
    C. Reduce credit to MSMEs
    D. Increase taxes on rural borrowers
    Answer: B.
  9. Which of these is not normally counted under PSL?
    A. Kisan Credit Card outstanding
    B. Home loan within PSL housing limits
    C. Large corporate term loans not qualifying as priority sector
    D. Education loan under PSL limits
    Answer: C.
  10. Who administers the Rural Infrastructure Development Fund (RIDF) where banks deposit PSL shortfalls?
    A. SEBI
    B. NABARD
    C. RBI directly
    D. Ministry of Finance
    Answer: B.
    Explanation: NABARD administers RIDF and receives PSL shortfall deposits. NABARD+1

B. Targets & Sub-targets (11–25)

  1. What is the overall PSL target for most domestic scheduled commercial banks (SCBs) as per RBI guidelines?
    A. 25% of ANBC
    B. 30% of ANBC
    C. 40% of ANBC
    D. 60% of ANBC
    Answer: C.
    Explanation: Domestic commercial banks are required to achieve 40% of ANBC as PSL. Avantis CDN Production Storage
  2. What percentage of ANBC is prescribed for agriculture under PSL for domestic commercial banks?
    A. 10%
    B. 18%
    C. 25%
    D. 35%
    Answer: B.
    Explanation: Agriculture target is 18% of ANBC. Avantis CDN Production Storage
  3. Within the agriculture target, the sub-target prescribed for Small & Marginal Farmers (SMFs) (recent RBI direction) is:
    A. 5% of ANBC
    B. 8% of ANBC
    C. 10% of ANBC
    D. 15% of ANBC
    Answer: C.
    Explanation: RBI’s updated directions prescribe 10% of ANBC for SMFs (within the 18% agriculture target). Avantis CDN Production Storage+1
  4. What is the typical PSL target for Regional Rural Banks (RRBs) and Small Finance Banks (SFBs)?
    A. 40% of ANBC
    B. 50% of ANBC
    C. 75% of ANBC
    D. 90% of ANBC
    Answer: C.
    Explanation: RRBs and SFBs have higher PSL obligations — generally 75% of ANBC. Reserve Bank of India+1
  5. Which of these targets is prescribed for Micro Enterprises under PSL?
    A. 2% of ANBC
    B. 7.5% of ANBC
    C. 20% of ANBC
    D. 40% of ANBC
    Answer: B.
    Explanation: Micro enterprises have a 7.5% target under PSL.
  6. What is the PSL sub-target for ‘Weaker Sections’ under domestic commercial banks?
    A. 5%
    B. 12% of ANBC
    C. 20%
    D. No specific sub-target
    Answer: B.
    Explanation: Advances to weaker sections are targeted at 12% of ANBC.
  7. Which of the following banks had their UCB PSL target revised (2025) to 60% of ANBC?
    A. Public Sector Banks
    B. Private Banks with >50 branches
    C. Urban Cooperative Banks (UCBs)
    D. Foreign Banks with >20 branches
    Answer: C.
    Explanation:     RBI revised PSL target for UCBs to 60% (from 75%) in 2025. Drishti IAS
  8. If a bank’s total ANBC = ₹10,000 crore, the agriculture target amount (18%) should be:
    A. ₹180 crore
    B. ₹1,800 crore
    C. ₹1,800 crore
    D. ₹18,000 crore
    Answer: C.
    Explanation: 18% of ₹10,000 crore = ₹1,800 crore.
  9. Which sector’s lending is eligible for special treatment (higher weight) to encourage regional flows under the 2025 directions?
    A. Corporate lending in metros
    B. Incremental priority sector credit may receive higher weights for regional targeting (per 2025 directions)
    C. Luxury housing
    D. Foreign corporate loans
    Answer: B.
    Explanation: 2025 directions introduced weight-based incentives to address regional imbalances. TaxGuru+1
  10. Which of these is a correct statement about small finance banks (SFBs)?
    A. They have no PSL obligations
    B. They have traditional PSL target of 75% of ANBC (subject to RBI updates)
    C. They can ignore MSME lending for PSL
    D. They only lend to corporates
    Answer: B.
    Explanation: SFBs traditionally have a 75% PSL target. (RBI guidance applies.) Reserve Bank of India
  11. Which of the following is included in computation of ANBC for PSL?
    A. All off-balance sheet exposures without adjustments
    B. Adjusted Net Bank Credit after specified adjustments per RBI rules
    C. Only deposits of the bank
    D. Only government bonds held by the bank
    Answer: B.
    Explanation: ANBC is Net Bank Credit adjusted per RBI master directions.
  12. PSL targets are computed on which of the following bases?
    A. Total number of borrowers only
    B. Adjusted Net Bank Credit (ANBC) or Credit Equivalent of Off-Balance Sheet Exposure (CEOBE), whichever is higher
    C. Bank’s profit only
    D. Stock market capitalization
    Answer: B.
    Explanation: PSL targets use ANBC or CEOBE as base.
  13. Which of the following correctly describes the relationship between Agriculture 18% and SMF 10%?
    A. SMF 10% is independent of agriculture target
    B. SMF 10% is a sub-target within the 18% agriculture allocation
    C. SMF 10% replaces agriculture 18%
    D. SMF 10% applies only to foreign banks
    Answer: B.
    Explanation: SMF target is a sub-target included within the 18% agriculture allocation. Avantis CDN Production Storage
  14. Which of the following statements is TRUE about MSME under PSL?
    A. Only manufacturing MSMEs qualify; services do not
    B. Both manufacturing and services sector MSMEs qualify (subject to classification rules)
    C. MSMEs never count under PSL
    D. MSMEs always count under agriculture sub-target
    Answer: B.
    Explanation: MSMEs in manufacturing and services can be PSL-eligible per guidelines.
  15. Which of these is a common way for banks to demonstrate PSL compliance without increasing loans?
    A. Buying PSLCs or depositing shortfall into RIDF (permissible options)
    B. Issuing new credit cards to urban youth only
    C. Investing in foreign equities
    D. Reducing branch network in rural areas
    Answer: A.
    Explanation: Banks can buy PSLCs or deposit shortfall in NABARD’s RIDF as compliance options. Reserve Bank of India+1

C. Instruments & Mechanisms (PSLCs, RIDF, Co-lending) (26–40)

  1. What does PSLC stand for?
    A. Priority Sector Lending Certificate
    B. Public Scheduled Lending Card
    C. Priority Subsidy Loan Contract
    D. Public Sector Loan Certificate
    Answer: A.
    Explanation: PSLC = Priority Sector Lending Certificate — tradable instrument for PSL. Reserve Bank of India+1
  2. Which statement about PSLCs is correct?
    A. PSLCs transfer the underlying loan asset from seller to buyer
    B. PSLCs transfer only the priority sector achievement — not the asset or credit risk
    C. PSLCs are convertible to equity
    D. PSLCs are physical certificates only issued by Government of India
    Answer: B.
    Explanation: PSLCs transfer fulfillment of obligation only; no transfer of loan asset or risk. Reserve Bank of India
  3. A bank is allowed to issue PSLCs up to what proportion of its previous year’s PSL achievement without having the underlying asset?
    A. 10%
    B. 25%
    C. 50%
    D. 100%
    Answer: C.
    Explanation: RBI allows issuing PSLCs up to 50% of previous year’s PSL achievement even without underlying assets (category-wise limit applies). Reserve Bank of India
  4. Where are PSLCs traded as per RBI operational instructions?
    A. Bombay Stock Exchange (BSE)
    B. e-Kuber portal of RBI (CBS portal)
    C. NSE only
    D. Physical counters of banks
    Answer: B.
    Explanation: PSLC trades are executed through RBI’s e-Kuber portal. Reserve Bank of India
  5. What is the purpose of RIDF?
    A. To fund corporate takeovers
    B. To receive PSL shortfall deposits and finance rural infrastructure projects
    C. To lend for luxury housing in metros
    D. To finance international trade deficits
    Answer: B.
    Explanation: RIDF is used to finance rural infrastructure; banks deposit PSL shortfalls into it. NABARD
  6. Which of the following counts towards agriculture sub-target if a bank deposits money into NABARD’s RIDF on account of PSL shortfall?
    A. No, never counts
    B. Yes, outstanding deposits made on account of PSL shortfall are eligible to be reckoned towards Agriculture sub-target (per RBI clarifications)
    C. Only counts for foreign banks
    D. Only counts for SFBs
    Answer: B.
    Explanation: RBI FAQs permit outstanding deposits with NABARD for PSL shortfall to be reckoned towards agriculture sub-target. Reserve Bank of India
  7. What does “co-lending” typically mean in the PSL context?
    A. Two banks jointly buying a single PSLC
    B. A bank co-lends with NBFCs/MFIs, sharing loan and risk for priority sector loans
    C. Co-lending refers to issuing two PSLCs for one loan
    D. It is a term for foreign borrowing
    Answer: B.
    Explanation: Co-lending involves banks and NBFCs/MFIs lending together and sharing risk and responsibility (subject to RBI co-lending norms).
  8. Which of the following is TRUE about PSLC pricing historically?
    A. PSLCs have always been free with zero price
    B. PSLCs are market-priced; earlier ranges varied (example historically 1–5% depending on demand-supply)
    C. PSLC price is fixed by RBI at 10%
    D. PSLC prices are set by NABARD only
    Answer: B.
    Explanation: PSLCs are market instruments; their price depends on demand & supply for particular PSL categories. Wikipedia
  9. Which bank function allows deposits with SIDBI/MUDRA/NHB to be reckoned under PSL achievement?
    A. Deposits with SIDBI counted for MSME target; MUDRA for relevant PSL categories; NHB for housing target — per RBI clarifications
    B. No such reckoning is allowed at all
    C. Only foreign banks can use such deposits
    D. Only PSLCs are recognized, not deposits
    Answer: A.
    Explanation: RBI FAQs clarify that certain deposits with SIDBI, MUDRA, and NHB can be reckoned under specific PSL categories. Reserve Bank of India
  10. Which of the following is NOT true about PSLC-General?
    A. It can be used to meet general PSL shortfalls
    B. Foreign banks with less than 20 branches are permitted to buy PSLC-General for their 8% target of ‘other than exports’
    C. There are restrictions for some banks on buying PSLC-General (e.g., small foreign banks)
    D. PSLC-General is one of several PSLC categories such as Agriculture, Micro, SMF etc.
    Answer: B.
    Explanation: RBI clarifies that foreign banks with less than 20 branches are NOT allowed to buy PSLC-General for certain targets; they can buy specific PSLC categories only. Reserve Bank of India

D. Eligible Activities & Examples (36–50)

  1. Which of the following is an eligible activity under agriculture PSL?
    A. Crop loans to farmers
    B. Tractor purchase by a farmer
    C. Kisan Credit Card advances
    D. All of the above
    Answer: D.
    Explanation: Crop loans, tractor loans, KCC are typical agriculture PSL items.
  2. Which of the following housing loans generally qualify under PSL (subject to limits)?
    A. Loans for luxury villas worth ₹5 crore
    B. Loans for affordable housing within prescribed limits (e.g., up to specified caps)
    C. Loans for industrial warehouses
    D. All corporate real estate loans
    Answer: B.
    Explanation: Housing loans qualify under PSL if they meet RBI-prescribed affordable housing limits.
  3. Which of these is a PSL-eligible renewable energy loan example?
    A. Loan for a 1 kW rooftop solar system for a farmer
    B. Loan for construction of an oil rig
    C. Corporate bond purchase for wind farm IPO
    D. Personal loan for car purchase
    Answer: A.
    Explanation: Small renewable energy projects (solar pumps, rooftop solar) fall under PSL.
  4. Loans to which of the following are included under “Weaker Sections”?
    A. Large corporate houses
    B. Small & marginal farmers, SHGs, SC/ST, artisans, landless labourers
    C. Only urban borrowers with salary > ₹50,000
    D. Only government employees
    Answer: B.
    Explanation: Weaker sections include small & marginal farmers, SHGs, SC/ST etc.
  5. Which of the following is true about loans to Micro Enterprises?
    A. Micro enterprises are defined as per MSME definitions and qualify under PSL subject to 7.5% target
    B. Micro enterprises never qualify under PSL
    C. Only big industries count as micro enterprises
    D. Micro enterprises only qualify if located in metros
    Answer: A.
  6. Which of the following would count towards the agriculture sub-target?
    A. Loan to a farmer for irrigation pump set
    B. Loan to a multinational to buy farmland abroad
    C. Personal loan to a city trader
    D. Corporate commercial real estate loan
    Answer: A.
  7. Which category would a loan to an FPO (Farmer Producer Organization) mainly engaged in agricultural produce typically fall under?
    A. Export Credit only
    B. Agriculture (if membership meets SMF criteria), otherwise subject to conditions
    C. Not eligible under PSL
    D. Only under PSLC-General
    Answer: B.
    Explanation: Loans to FPOs with sufficient SMF membership may count under agriculture per RBI criteria. Reserve Bank of India
  8. Which of the following education loans generally come under PSL?
    A. Education loans within prescribed limits for higher studies (domestic & some foreign)
    B. Education loans for luxury foreign MBA only
    C. Loans to start a restaurant
    D. Car loans for students
    Answer: A.
  9. Which of these is typically an MSME PSL-eligible item?
    A. Working capital to a small garment manufacturer
    B. Big-ticket corporate loan for a conglomerate expansion
    C. Sovereign bond investment by bank
    D. Equity investment in startups (not credit)
    Answer: A.
  10. Which of the following examples will NOT be eligible as renewable energy for PSL?
    A. Solar pumps for irrigation
    B. Biogas plants for rural households
    C. Coal-fired thermal plants
    D. Rooftop solar systems on farmhouses
    Answer: C.

E. Compliance, Reporting & Penalties (46–60)

  1. If a bank fails to achieve its PSL targets, it may be required to:
    A. Issue more credit cards only
    B. Deposit shortfall into RIDF managed by NABARD or buy PSLCs
    C. Merge with another bank immediately
    D. Stop all lending for next year
    Answer: B.
    Explanation: Banks may deposit shortfall into RIDF or buy PSLCs as RBI allows. NABARD+1
  2. Which of the following is TRUE about PSL reporting?
    A. Banks report PSL achievement quarterly and annually to RBI as per reporting formats
    B. Banks report PSL only once every 10 years
    C. Only private banks report PSL numbers
    D. PSL reporting is voluntary and not tracked by RBI
    Answer: A.
    Explanation: RBI requires periodic reporting of PSL achievement.
  3. Which of the following is a likely effect if PSLC prices fall to very low levels consistently?
    A. Banks will prefer buying PSLCs rather than lending, possibly reducing real credit flow to priority sectors — a policy concern flagged by experts
    B. PSL becomes redundant in accounting only
    C. RBI sets PSLC price to zero by law
    D. PSLCs will become government bonds
    Answer: A.
    Explanation: Low PSLC pricing could create moral hazard; RBI monitors PSLC market.
  4. Which of the following actions has RBI taken to refine PSL policy in 2025?
    A. Eliminated PSL entirely
    B. Issued revised master directions updating targets, category definitions and introducing weight-based incentives (effective Apr 1, 2025)
    C. Increased PSL to 90% for all banks
    D. Outsourced PSL rules to state governments only
    Answer: B.
    Explanation: RBI issued updated PSL master directions in March 2025 effective April 1, 2025. FIDC+1
  5. Which of the following is TRUE about PSLC net position while reporting?
    A. Net PSLC position (Buy – Sell) is to be considered while reporting quarterly and annual priority sector returns
    B. Gross PSLC volumes are ignored by RBI
    C. PSLCs are not reported at all
    D. Only PSLC-Sell is reported, not purchases
    Answer: A.
    Explanation: RBI requires net PSLC position to be reflected in PSL returns. Reserve Bank of India
  6. Which of the following is a correct remedy used by RBI/government to channel PSL shortfall funds for cooperative credit in 2024–25?
    A. Allocating PSL shortfall corpus to Short-term Co-operative Rural Credit Refinance Fund (STCRC-RF) administered by NABARD
    B. Using PSL shortfall to buy foreign assets directly
    C. Giving shortfall funds to state governments only for highways
    D. Using shortfall funds to pay bank executives’ bonuses
    Answer: A.
    Explanation: PSL shortfall funds were allocated to STCRC-RF to support cooperative rural credit. Digital Sansad
  7. Which of the following banks are not allowed to buy PSLC-General for certain targets as clarified by RBI?
    A. Foreign banks with less than 20 branches — they face restrictions on PSLC-General purchases for some targets (they can buy category-specific PSLCs instead)
    B. Public sector banks with >50 branches
    C. Regional Rural Banks
    D. All banks without any restriction
    Answer: A.
    Explanation: RBI clarified restrictions for smaller foreign banks regarding PSLC-General purchases. Reserve Bank of India
  8. Which of the following is NOT a correct way to meet PSL targets?
    A. Direct lending to eligible priority sectors
    B. Buying PSLCs from other banks
    C. Depositing shortfall into NABARD RIDF (eligible in specified manner)
    D. Lending to large foreign corporate houses unrelated to PSL categories and claiming credit
    Answer: D.
    Explanation: Only eligible methods count; lending to unrelated corporates doesn’t help PSL.
  9. Which of the following is TRUE about weight-based system introduced in 2025 PSL directions?
    A. It assigns higher weight to incremental priority sector credit for under-served regions to narrow regional disparities
    B. It reduces lending to agriculture automatically
    C. It abolishes PSLCs
    D. It mandates equal weight to all loans regardless of region
    Answer: A.
    Explanation: 2025 revisions introduced measures to incentivize regional targeting via weights. TaxGuru
  10. Which of the following would NOT usually be used to calculate a bank’s PSL achievement?
    A. Outstanding priority sector loans on reporting date
    B. Net PSLC position (Buy – Sell)
    C. Deposits with NABARD on account of PSL shortfall (where permitted)
    D. Bank’s share price on stock exchange
    Answer: D.
    Explanation: PSL achievement is based on lending/eligible deposits/PSLCs — not market price.
  11. Which bank-level change may increase the supply of PSLCs in the market?
    A. Reduced lending to priority sectors by many banks (creating more buyers)
    B. Rapidly increasing priority sector lending by some banks (creating more sellers)
    C. Government banning PSLCs
    D. RBI fixing PSLC price at zero permanently
    Answer: B.
    Explanation: When some banks lend more to PSL, they can sell PSLCs to banks with shortfalls.
  12. Which of the following best describes the spirit of PSL policy?
    A. To centralize all banking in metros only
    B. To channel credit to inclusive sectors and correct market failure in credit allocation
    C. To reduce bank lending to MSMEs and farmers only
    D. To eliminate rural credit institutions
    Answer: B.
  13. Which of the following is TRUE regarding co-lending arrangements to meet PSL?
    A. Co-lending options allow banks to partner with NBFCs/MFIs; loans may be counted under PSL subject to RBI co-lending norms
    B. Co-lending is illegal in India
    C. Only government banks can co-lend; private banks cannot
    D. Co-lending automatically transfers PSL credit to NBFCs only
    Answer: A.
  14. Which of the following is an example of a loan that can be counted in both MSME and export credit categories (if eligible)?
    A. Loan to an MSME exporter engaged in manufacturing & exporting goods — may be PSL-eligible under both depending on classification rules
    B. Loan to buy a luxury yacht for personal use
    C. Loan to a foreign government
    D. Personal housing loan in metro
    Answer: A.
  15. Which of the following PSL facts was revised and clarified in RBI’s March 24, 2025 master directions?
    A. Abolition of ANBC concept
    B. Details on targets, classification, PSLC rules, permissible reckonings and new measures for better targeting (effective April 1, 2025)
    C. PSL now applies only to foreign banks
    D. PSL targets reduced to zero for all banks
    Answer: B.
    Explanation:     RBI’s master directions in March 2025 updated the framework, targets, and operational rules. FIDC+1