Economics • Banking & FinanceEasy
What is the primary purpose of 'Priority Sector Lending (PSL)' guidelines issued by the RBI?
A. To ensure adequate credit flow to vulnerable sectors like agriculture, MSMEs, and weaker sections✓ Correct Answer
B. To provide venture capital funding exclusively to multinational technology startups
C. To mandate foreign banks to invest only in urban infrastructure projects
D. To penalize commercial banks for maintaining excess cash reserves
💡 Solution & Explanation
Priority Sector Lending guidelines issued by the Reserve Bank of India direct commercial banks to channel a specified percentage of their aggregate lending toward vital and vulnerable economic sectors like agriculture, micro, small and medium enterprises, and weaker sections. This framework ensures that credit reaches segments that might otherwise face financial exclusion due to perceived high risks. Domestic commercial banks are generally mandated to allocate 40 percent of their Adjusted Net Bank Credit to these priority sectors.
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