The Reserve Bank of India (RBI) has clarified that banks cannot impose excessive charges, especially on small loans under the Priority Sector Lending (PSL) category.
The central bank stated that no loan-related service charges or inspection fees should be levied on PSL loans up to ₹50,000. This measure aims to protect small borrowers and promote fair lending practices.
The RBI has introduced new Master Directions on PSL, which will come into effect on 1 April 2025. These guidelines will replace the existing framework established in 2020.
Under the new rules, loans against gold jewellery acquired by banks from Non-Banking Financial Companies (NBFCs) will not qualify as PSL. This means banks cannot count such loans towards their PSL targets. The RBI wants priority sector funds to support sectors that genuinely need financial assistance, such as agriculture, small businesses, and weaker sections of society.
The RBI has also assured that loans categorised as PSL under the 2020 framework will continue to be eligible until they mature. This move ensures continuity for both borrowers and banks, allowing a smooth transition to the new guidelines.
To improve compliance, the RBI will introduce stricter monitoring. Banks must now submit detailed reports on their PSL advances every quarter and at the end of each financial year. Quarterly data must be reported within 15 days, while annual reports must be submitted within one month. This step aims to enhance transparency and accountability in PSL implementation.
Banks that fail to meet PSL targets will have to contribute to the Rural Infrastructure Development Fund (RIDF) and other financial schemes managed by NABARD and similar institutions. This ensures that even if banks do not directly meet their lending obligations, they still support priority sector development through financial contributions.
The RBI has also reaffirmed that loans granted under COVID-19 relief measures will continue to be classified as PSL. This decision supports sectors still recovering from the pandemic’s economic impac
With these revised PSL guidelines, the RBI aims to promote financial inclusion and socio-economic growth. By ensuring underserved sectors receive adequate credit, the central bank is reinforcing its commitment to fair lending and financial stability. The updated framework reflects RBI’s focus on directing credit to sectors that need it most.
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