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RBI reviews priority sector lending, drafts separate rules for each bank type: what the rules do now
RBI on 5 November released five draft Directions on priority sector lending, one per bank type, after a review. Comments close on 26 November. The rules steer 40% of commercial bank credit to farmers, small firms and weaker sections, and decide which home and education loans qualify.
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The Reserve Bank of India on 5 November 2026 released five sets of draft Directions on priority sector lending, one for each kind of bank: commercial banks, small finance banks, local area banks, regional rural banks and urban co-operative banks. The RBI said that, as part of its consolidation of instructions, it has undertaken a review of the existing guidelines and proposes to issue separate Directions for each type of regulated entity. Comments are invited until 26 November 2026. Press release number 2026-2027/1447 says instructions left out of the consolidated drafts will be repealed once the Directions are issued.
The press release does not list what has changed in substance, so anyone affected will need to compare each draft with the current text. That comparison matters, because these rules shape where a very large share of India's bank credit goes.
What priority sector lending is
Priority sector lending is the system under which banks must direct a fixed share of their credit to sectors that the market might otherwise under-serve. The base is Adjusted Net Bank Credit, or ANBC. The current rulebook is the Priority Sector Lending Directions, 2025, in force from 1 April 2025 and updated three times this year, on 19 January, 7 August and 11 September.
The targets under those Directions, as a share of ANBC or the credit equivalent of off-balance sheet exposures, whichever is higher, are:
| Target | Domestic and large foreign banks | Regional rural banks | Small finance banks | Urban co-operative banks |
|---|---|---|---|---|
| Total priority sector | 40% | 75% | 60% | 60% |
| Agriculture | 18% | 18% | 18% | – |
| Micro enterprises | 7.5% | 7.5% | 7.5% | 7.5% |
| Weaker sections | 12% | 15% | 12% | 12% |
Within agriculture, 10% of ANBC is reserved for small and marginal farmers, meaning those with up to two hectares. Foreign banks with fewer than 20 branches have a different structure, with up to 32% in export credit.
The categories cover agriculture, micro, small and medium enterprises, export credit, education, housing, social infrastructure, renewable energy and others. Weaker sections include small and marginal farmers, Scheduled Castes and Tribes, members of self-help groups, women borrowers up to Rs 2 lakh, persons with disabilities and transgender persons.
Why it matters to ordinary borrowers
The rules decide which loans banks want. Because a qualifying loan helps a bank meet its target, banks have reason to favour such borrowers. Under the current Directions:
- Home loans qualify up to Rs 50 lakh in centres with a population of 50 lakh or more, Rs 45 lakh in centres of 10 to 50 lakh, and Rs 35 lakh elsewhere, with limits on the cost of the dwelling of Rs 63 lakh, Rs 57 lakh and Rs 44 lakh.
- Education loans qualify up to Rs 25 lakh, including vocational courses.
- All bank loans to micro, small and medium enterprises qualify.
- Renewable energy loans qualify up to Rs 35 crore per borrower, and up to Rs 10 lakh for households.
- Loans to start-ups qualify up to Rs 50 crore.
If the drafts change any of these limits, the effect will be felt directly in home, student and small business lending. Banks are also watching the district weights. Lending in districts with per capita priority sector credit below Rs 9,000 is counted at 125%, and in districts above Rs 42,000 at 90%, to push credit towards under-served areas. That arrangement is valid through 2026-27 and is subject to review, so the drafts are a natural place to look for what comes next.
Missing the target has a cost. A bank with a shortfall must place money in the Rural Infrastructure Development Fund and similar funds with NABARD, NHB, SIDBI and MUDRA, at rates below the Bank Rate: by two percentage points for a shortfall under 5 points, three for 5 to 10 points, and four beyond that. Such deposits count towards the targets, but the bank earns much less than it could on a loan. Banks can also buy Priority Sector Lending Certificates from others that have a surplus.
The present master direction covers all banks in a single document, with many tables and exceptions. Five separate texts should mean that a small finance bank or a co-operative bank can read one document that applies to it, without working through provisions meant for others. This is part of a wider RBI effort to consolidate its rulebook. Critics of such exercises point out that consolidation can bring in substantive changes quietly, which is why the RBI's own word "review" deserves attention. However, the open comment window gives banks and borrower groups a chance to raise any change they find.
What to check, and how to comment
Five questions are worth putting to the drafts. Have the overall targets or sub-targets moved? Have the housing, education or renewable energy limits changed? What happens to the district weights after 2026-27? Are there changes to the treatment of lending through intermediaries and of certificates? And which older instructions are being dropped?
Feedback can be sent through the Connect 2 Regulate section of the RBI website, using the link on each draft's page, or by email to fiddpsd@rbi.org.in, with the subject line naming the draft Direction and the type of regulated entity. The deadline is 26 November 2026. Final Directions will follow after the RBI considers the comments. Until then, the 2025 Directions, as amended, remain in force.
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Reyaansh Agarawal
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Reyaansh Agarawal contributes to Wirony, covering stories that are carefully reviewed and approved by the editorial team before publication. Wirony is committed to maintaining tran…
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