A new report by SBI Research proposes significant revisions to the Reserve Bank of India's (RBI) Priority Sector Lending (PSL) framework. The recommendations aim to better align loan eligibility with current market realities, particularly the sharp increase in property prices and higher education costs across India.
Revised Home Loan Limits Proposed
Under the current PSL guidelines, home loans qualify for priority sector classification up to varying limits based on city population. SBI Research suggests increasing this eligibility to ₹1 crore for metro centers and ₹75 lakh for other urban areas. The report highlights that existing thresholds have not kept pace with the substantial rise in residential property prices over recent years.
This proposed revision is driven by an anticipated increase in the average ticket size of incremental home loans, which is nearing current PSL thresholds. If adopted, a larger segment of homebuyers, especially in major cities where property values are significantly higher, could gain access to loans under the priority sector category. The proposal also includes increasing maximum project cost limits and integrating intermediated housing loans into the PSL framework.
Education Loan Cap to Double
In addition to home loans, SBI Research advocates for a substantial increase in the education loan limit under PSL. The current RBI guidelines classify education loans up to ₹25 lakh within the priority sector. The report recommends doubling this ceiling to ₹50 lakh.
The rationale behind this push is the escalating cost of higher education, both within India (especially at private medical, engineering, and professional institutions) and for students pursuing studies abroad. Recognizing education as a national priority, the report argues that the existing limit no longer reflects contemporary financing needs for quality education, hindering access to affordable credit for many students.
Broader PSL Review for Economic Growth
These specific proposals are part of a wider call by SBI Research for a comprehensive modernization of the PSL framework. Introduced in 1972, PSL mandates banks to direct a portion of their lending (currently 40% of Adjusted Net Bank Credit) towards sectors deemed vital for inclusive economic development, such as agriculture, MSMEs, housing, and education.
The report notes that banks consistently meet and often exceed these targets, with provisional estimates for FY26 indicating overall PSL at 45% of ANBC. This strong performance, according to the report, creates an opportunity to expand PSL coverage to emerging sectors like infrastructure, climate sustainability finance, and renewable energy, alongside revising existing loan limits. Any modifications to the PSL framework would require final approval from the RBI.