PSL overhaul needed to back renewables, EVs, climate finance: Report | Chennai News
Chennai: Banks are comfortably meeting the overall 40% priority sector lending (PSL) target, but the framework requires a comprehensive overhaul to align with the country’s Viksit Bharat 2047 ambitions. Emerging sectors such as renewable energy, electric mobility, climate finance, ESG investing and infrastructure financing should become integral parts of the PSL architecture to support India’s long-term economic transformation, according to a report by SBI Research.It has proposed a significant expansion of priority sector lending support for the renewable energy sector, recommending that the Reserve Bank of India raise the eligible loan ceiling for renewable energy projects nearly threefold—from the current ₹35 crore to ₹100 crore. For individual households, it has suggested increasing the loan limit for rooftop solar installations from ₹10 lakh to ₹2 crore. The report noted that despite policy support, outstanding renewable energy loans have grown at only a 9% compound annual growth rate over the past five years, indicating the need for stronger credit support to accelerate India’s clean energy transition.Similarly, the report has recommended bringing the electric vehicle manufacturing ecosystem under the priority sector lending framework. Specifically, it proposes widening the existing 7.5% PSL sub-target for micro enterprises to include financing for MSMEs engaged in manufacturing electric vehicles and EV components.“Climate-related risks are expected to have a significant impact on India’s financial system and the future of the agricultural and MSME sectors. At this stage, it is crucial to ensure that banks are incentivised to finance projects that help India achieve its objectives in addressing climate-related risks,” the report said.Its other major recommendations include the creation of a separate “Climate Sustainability Finance” category within the PSL framework to channel credit towards projects that contribute to climate action. It also proposed allowing banks’ investments in green bonds, ESG bonds and sovereign green bonds to qualify for PSL classification. The report argued that dedicated financing support would help India meet its sustainable development goals and its commitment to achieving net-zero emissions by 2070.The report has also advocated extending priority sector status to all infrastructure loans or, alternatively, excluding infrastructure lending from Adjusted Net Bank Credit (ANBC) calculations used for PSL compliance. It argued that achieving the government’s Viksit Bharat 2047 vision will require massive long-term infrastructure investments at a time when India’s corporate bond market remains underdeveloped. According to the report, such a move would encourage banks to finance infrastructure projects more aggressively without affecting their PSL targets.
Individual education loan limit can be enhanced
It has also proposed revising upward the loan limits for housing loans eligible under PSL, citing rising property prices and larger average home loan sizes. It suggested increasing the eligible loan limit to ₹1 crore in metropolitan centres and ₹75 lakh in other centres. It also recommended raising the project cost limits while providing for a 25% margin.In addition, it has recommended doubling the PSL-eligible education loan ceiling for individuals from ₹25 lakh to ₹50 lakh. It noted that rising tuition fees at professional institutions and growing demand for overseas education justify a higher threshold.For social infrastructure, it has recommended raising the lending ceiling for school projects to ₹15 crore and for healthcare facilities to ₹25 crore across all cities, arguing that the current limits no longer reflect the investment required to meet growing demand.To support larger investments in agriculture, SBI Research proposed doubling the eligible PSL loan limit for food and agro-processing projects to ₹200 crore per bank, with an aggregate banking system exposure of ₹500 crore per borrower.
