Citi has noted that the Reserve Bank of India’s (RBI) latest revisions to its Master Directions on Priority Sector Lending (PSL) are broadly positive for the banking sector, especially for large lenders like HDFC Bank. The revisions effectively raise the threshold limits across multiple loan categories, allowing banks to book a greater share of their credit exposure under the PSL segment, thereby easing compliance and enhancing credit penetration in key sectors.
The enhancements include a rise in the eligibility limit for individual housing loans to ₹50 lakh for metro centers, ₹45 lakh for cities with population between 1-5 million, and ₹35 lakh for centers below 1 million—significantly up from the previous ₹35 lakh, ₹35 lakh, and ₹25 lakh limits, respectively. The maximum dwelling cost has also been revised upward to ₹63 lakh, ₹57 lakh, and ₹44 lakh based on city size. Additionally, the RBI has increased PSL eligibility for education loans from ₹20 lakh to ₹25 lakh, loans for schools and sanitation facilities from ₹5 crore to ₹8 crore, and health care infrastructure from ₹10 crore to ₹12 crore in Tier II-VI towns. The limit for artisans, women borrowers, and cottage industries under the weaker sections category has also been doubled from ₹1 lakh to ₹2 lakh.
Citi believes these enhancements will help banks book more PSL-eligible assets while expanding credit to key underserved segments. HDFC Bank is expected to benefit the most, given its focus on retail credit and granular portfolio. Citi adds that the move also removes the interest rate cap for securitized assets to qualify as PSL, broadening the scope for indirect lending via structured instruments.
