RBI Proposes Rs 100-Crore Priority Sector Loan Limit for Agriculture Infrastructure, Food Processing Loans

The Reserve Bank of India (RBI) has proposed increasing the eligible loan limit for agriculture infrastructure and food and agro-processing activities to Rs 100 crore per borrower under its priority sector lending (PSL) framework. The proposal is part of the central bank’s draft guidelines for commercial banks, aimed at improving credit access to important sectors of the economy.

The draft Reserve Bank of India (Commercial Banks – Priority Sector Lending – Targets and Classification) Directions, 2026, also proposes changes to eligibility rules for small and marginal farmers, housing loans, education loans, social infrastructure and renewable energy projects.

Despite the proposed revisions, the RBI has retained the overall priority sector lending target at 40% of adjusted net bank credit (ANBC) or the credit equivalent of off-balance-sheet exposures, whichever is higher.

Key Highlights

• RBI proposes a Rs 100 crore per-borrower PSL limit for agriculture infrastructure and food processing loans.
• The overall priority sector lending target remains unchanged at 40% of adjusted net bank credit.
• Education loans of up to Rs 25 lakh may qualify under the revised framework.
• Renewable energy projects may receive priority sector classification for loans up to Rs 35 crore per borrower.
• RBI proposes quarterly monitoring of banks’ compliance with priority sector lending targets.

RBI Proposes Higher Loan Limits for Agriculture Infrastructure

Under the proposed framework, loans for agriculture infrastructure could qualify for priority sector classification up to an aggregate sanctioned limit of Rs 100 crore per borrower. The move is expected to support financing for projects that strengthen agricultural storage, infrastructure and resource management.

Eligible activities include:

• Construction of warehouses and cold storage facilities.
• Soil conservation and watershed development projects.
• Establishment of compressed biogas plants.

These activities are important for improving agricultural infrastructure and supporting the movement, storage and processing of farm produce. A higher eligible loan limit could make it easier for larger infrastructure projects to access bank credit under the priority sector framework.

Food and Agro-Processing Loans Eligible Up to Rs 100 Crore

The RBI has also proposed allowing loans of up to Rs 100 crore per borrower for food and agro-processing activities to qualify as priority sector lending.

Food processing plays an important role in converting agricultural produce into finished or semi-processed products. Access to financing can help businesses invest in processing facilities and related infrastructure.

The proposed higher limit could provide greater financing flexibility to eligible businesses while strengthening the connection between agricultural production and processing activities.

Changes to Small and Marginal Farmer Eligibility

The draft directions propose expanding the eligibility criteria for the small and marginal farmers category. Loans of up to Rs 2.5 lakh per borrower to individuals engaged exclusively in allied agricultural activities may qualify under this category.

Importantly, the proposed provision does not require these borrowers to meet any landholding criteria. This could improve access to formal bank credit for individuals involved in agricultural activities beyond traditional crop cultivation.

The proposal recognises the financing needs of people engaged in allied agricultural activities and seeks to bring eligible borrowers within the priority sector lending framework.

RBI Proposes Changes to Education Loan Eligibility

The central bank has proposed increasing the eligible limit for individual education loans to Rs 25 lakh. Loans covering vocational courses would also qualify for priority sector classification under the draft guidelines.

The proposed revision could improve access to bank financing for students pursuing higher education and skill-based training. Vocational courses are particularly important for developing specialised skills and improving employment opportunities.

By including these loans within the priority sector framework, the RBI aims to support education financing as part of banks’ lending obligations.

New Housing Loan Limits Based on City Population

The RBI has proposed revised eligibility limits for housing loans used to purchase or construct residential properties. The limits will depend on the population of the location where the property is situated.

The proposed housing loan limits are:

The draft also includes loans for repairing damaged residential units within the proposed priority sector classification limits. These provisions could help eligible borrowers access formal housing finance for both new homes and necessary repairs.

Higher Priority Sector Limits for Social Infrastructure

The RBI has proposed higher financing limits for selected social infrastructure projects. Loans of up to Rs 8 crore per borrower for setting up schools, drinking water facilities and sanitation infrastructure may qualify for priority sector lending.

For healthcare facilities in Tier 2 to Tier 6 centres, the proposed eligible loan limit is Rs 12 crore per borrower.

These changes are intended to support investment in essential services and infrastructure, particularly in locations where access to education, healthcare, clean drinking water and sanitation remains important.

Renewable Energy Loans May Get Higher Eligibility Limits

The draft directions also propose revised loan limits for renewable energy projects. Borrowers setting up renewable energy-based power generation projects and public utilities may receive priority sector classification for loans of up to Rs 35 crore per borrower.

For individual households, the proposed eligible loan limit is Rs 10 lakh per borrower.

The proposed changes could support financing for renewable energy infrastructure and household-level clean energy adoption. They also reflect the importance of expanding access to bank credit for projects that contribute to India’s energy transition.

RBI Proposes a 5% Cap on Certain On-Lending Loans

The draft introduces an overall cap of 5% of a bank’s average priority sector lending achievement over the four quarters of the previous financial year for loans to non-Banking financial companies (NBFCs), housing finance companies and the National Cooperative Development Corporation (NCDC) for on-lending.

However, this cap will not apply to lending to NBFC-MFIs and other microfinance institutions that are members of an RBI-recognised self-regulatory organisation.

On-lending allows financial institutions to borrow funds from banks and subsequently provide loans to eligible borrowers. The proposed limit aims to establish a defined boundary for the contribution of certain institutional lending channels to banks’ priority sector obligations.

Priority Sector Lending Certificates: What the RBI Has Proposed

The RBI has proposed a framework for Priority Sector Lending Certificates (PSLCs), which allows banks with surplus priority sector lending achievements to sell certificates to banks that have a shortfall.

Under the proposed system, PSLCs will be traded in standard lots of Rs 25 lakh and multiples thereof. The fees will be determined by market conditions.

The mechanism allows banks to meet their priority sector targets by purchasing notional fulfilment from institutions with surplus lending achievements. Importantly, the transaction does not involve the transfer of credit risk or the underlying loan assets.

This arrangement provides banks with an additional way to manage their priority sector lending obligations while allowing institutions with higher eligible lending to participate in the certificate market.

Overall Priority Sector Lending Target Remains at 40%

Despite the proposed changes to individual loan categories, the RBI has retained the overall priority sector lending target at 40% of adjusted net bank credit or the credit equivalent of off-balance-sheet exposures, whichever is higher.

The existing sector-specific targets mentioned in the draft include:

• Overall priority sector: 40% of the applicable credit base.
• Agriculture: 18%.
• Micro enterprises: 7.5%.

Retaining these targets means banks will continue to have the same overall lending obligations, while the proposed revisions change which loans and activities can qualify for priority sector classification.

Quarterly Monitoring of Bank Compliance

The RBI has proposed monitoring banks’ compliance with priority sector lending targets on a calendar-quarter basis. The objective is to ensure a continuous flow of credit to eligible sectors throughout the year.

Quarterly monitoring could help the central bank track lending performance more regularly rather than relying only on annual assessments. It may also encourage banks to maintain consistent lending activity across priority sectors.

When Will the New RBI Priority Sector Lending Rules Take Effect?

The latest proposals are part of draft directions and are not yet final rules. The RBI has stated that the revised directions will come into force with immediate effect once issued in their final form.

Until the final directions are released, banks and borrowers should treat the proposed loan limits and eligibility changes as draft provisions rather than confirmed operational requirements.

What the Proposed RBI Changes Mean for Banks and Borrowers

The proposed revisions could expand the range of eligible loans under the priority sector framework, particularly for agriculture infrastructure, food processing, education, housing and renewable energy.

For banks, the changes may provide greater flexibility in meeting lending obligations while maintaining the overall 40% target. For eligible borrowers, higher loan limits could improve access to formal financing for infrastructure projects, education and essential services.

The next important step will be the RBI’s final notification. Its final provisions will determine how banks implement the revised classification rules and how the proposed changes affect priority sector credit availability across the economy.