Priority sector lending – is a statutory requirement by the RBI on commercial banks to give a certain proportion of their loans to the priority sectors. These sectors are traditionally weaker to get competitive loans or have development functions to perform. Priority sectors broadly include agriculture and allied activities, micro and small enterprises, education, housing (up to Rs 25 lakh) and micro-credit. All domestic commercial banks are required to allocate 40 per cent of their lending to the priority sectors. For foreign banks, the requirement is 32 per cent and export credit is also included in their case. Credit extended by banks to SHGs, micro-finance institutions, to NBFCs for on-lending to priority sector, and to regional rural banks for agriculture and allied activities has been included in the definition of priority sector. Investments made by banks in securitised assets, representing loans to various categories of priority sector which are originated by banks and financial institutions, are also included in priority sector.
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