The growth in priority sector lending (PSL) for scheduled commercial banks slowed to 12% in FY25 from 16.9% a year ago, according to the Trend and Progress of Banking report, released by the Reserve Bank of India (RBI) on Monday.
The moderation in growth was led by private banks, while public sector banks posted a marginal increase, it noted. However, all banks managed to achieved their PSL targets, the RBI said.
Currently, banks should lend 40% of their total credit to priority sectors, while the RBI revised total PSL target for small finance banks to 60% from 75%, effective April 1, 2025.
Outstanding advances
Total outstanding advances to the priority sector stood at Rs 67.26 lakh crore as on March 2025, constituting 43.6% of the total credit. Banks were also able to achieve their sub-targets.
The asset quality of priority sector advances continued to improve, with the gross non-performing assets (GNPA) ratio falling to 4% in FY25 from 4.4% a year ago. However, priority sector claimed 64.7% of banks’ GNPAs in FY25, up from 58.2% a year ago, as non-priority NPAs dropped sharply. The agriculture sector accounted for the highest share of GNPAs in the priority sector.
Trading volume
Meanwhile, the total trading volume of priority sector lending certificates (PSLCs) increased by 36.4% on year to Rs 12.2 lakh crore in FY25, led by PSLC-general and micro enterprises. Among the four PSLC categories, the small and marginal farmers category reported the highest trading volume.
Private sector banks continued to dominate as top buyers and sellers of PSLCs in FY25. Regional rural banks took the second position as sellers, “reflecting their focused loan portfolio and comparative advantage in rural lending”. Public sector banks have seen a rising share in PSLC purchases, according to the report.