The recommendations come months after the RBI tightened PSL norms by introducing stricter safeguards for loans originated through intermediary lenders such as non-banking financial companies (NBFCs) and housing finance companies (HFCs).
The central bank’s revised rules, issued earlier this year, require enhanced reporting and auditor certification to prevent the same loan from being counted multiple times toward PSL targets.
SBI Research also pointed to the Prime Minister’s Economic Advisory Council (PMEAC) working paper on the economic impact of Priority Sector Lending, released in May 2026, saying the existing framework is due for a review in line with the government’s Viksit Bharat agenda.
Higher limits for home and education loans
The report recommends increasing the PSL-eligible home loan limit to ₹1 crore in metro centres and ₹75 lakh in other centres.
At present, home loans qualify for PSL subject to city-wise loan and property value limits, with the maximum loan ceiling at ₹50 lakh in cities with a population above 50 lakh.
It also proposes raising the education loan limit eligible for PSL from ₹25 lakh to ₹50 lakh, citing a sharp increase in fees at professional institutions and the growing number of Indian students pursuing higher education abroad.
According to SBI Research, the average ticket size of incremental housing loans is expected to reach ₹45-50 lakh, bringing many borrowers close to the existing eligibility threshold and limiting the growth of housing loans qualifying under PSL.
Questions over how banks meet PSL targets
The report also argued that while banks have consistently met the RBI’s requirement of lending 40% of adjusted net bank credit to priority sectors, a growing share of compliance is being achieved through Priority Sector Lending Certificates (PSLCs) and deposits under the Rural Infrastructure Development Fund (RIDF) rather than fresh lending.
Its analysis showed that excluding PSLCs and RIDF, banks’ “organic” priority sector lending stood at 34.4% of adjusted net bank credit in FY25, below the mandated 40%, even though reported PSL reached 43.6%.
The report noted that trading in PSLCs has increased sharply over the years, rising from ₹1.8 lakh crore in FY18 to ₹12.2 lakh crore in FY25, indicating that banks are increasingly relying on the certificate market to bridge lending shortfalls.
Broader overhaul proposed
Beyond higher loan limits, SBI Research has recommended expanding the PSL framework to better align with emerging financing needs.
It suggested including climate sustainability finance and infrastructure lending, revising limits for renewable energy and social infrastructure, and making changes to the Rural Infrastructure Development Fund to encourage more direct lending by banks.
