Economics • Banking & FinanceMedium
What does the term 'Priority Sector Lending (PSL)' mandate for commercial banks operating in India?
A. Allocation of a specified percentage of bank credit to vulnerable sectors like agriculture, micro enterprises, and weaker sections✓ Correct Answer
B. Extension of unsecured foreign currency loans exclusively to multinational corporations
C. Maintenance of mandatory capital reserves in overseas sovereign bonds
D. Investment of surplus funds in municipal infrastructure projects without collateral
💡 Solution & Explanation
Priority Sector Lending guidelines issued by the Reserve Bank of India require domestic and foreign commercial banks to allocate a specified portion of their adjusted net bank credit to vital sectors of the economy that lack adequate access to formal credit, including agriculture, micro, small, and medium enterprises, education, housing, and weaker sections. Failure to meet these targets necessitates investment in Rural Infrastructure Development Funds managed by NABARD. This policy aims at promoting inclusive financial growth.
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