EAC-PM Suggests Reform in PSL Framework

Recently, the Economic Advisory Council to the Prime Minister (EAC-PM) released paper titled ‘Economic Impact Analysis of Priority Sector Lending(PSL)’.

Issues with the PSL Framework

  • Uneven Credit Distribution: Around 7-8% of districts account for nearly 45-46% of PSL credit, while regions such as the North-East, the Himalayan belt, and eastern India remain inadequately served.
  • Poor Targeting: Priority sector lending is disproportionately concentrated in urban and industrial areas instead of reaching poorer and vulnerable regions.
  • Rigid Lending Norms: The mandatory 40% PSL target constrains banks’ flexibility, lowers efficiency in capital allocation, and often channels credit into low-yield projects.
  • Excessive Reliance on Priority Sector Lending ....
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