Priority Sector Advances, Important for JAIIB PPB 2026

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Published on 13 February 2026 by

The concept of Priority Sector Advances is one of the most important topics for the JAIIB Paper on Principles & Practices of Banking (PPB). Priority sector advances aim to ensure that certain critical sectors of the economy, such as agriculture, micro and small enterprises, and weaker sections of society, receive adequate credit from banks. Understanding the categories, targets, sub-targets, and recent developments is crucial for exam preparation. In this blog, we have provided all the details about the aspects of priority sector advances.

What topics are covered under priority sector advances?

Priority Sector Advances cover all sectors that are crucial for inclusive economic growth, including agriculture, small enterprises, retail trade, micro credit, education, and housing. It also includes the targets, sub-targets, and recent developments introduced by the government and RBI to ensure banks meet lending obligations and provide support to weaker sections and rural areas.

TopicDetails
National Credit Council (NCC)Role in promoting bank lending to priority sectors; historical development from 1968 emphasis, 1972 formalisation, 1985 targets; sub-targets for agriculture and weaker sections.
Categories of Priority SectorIncludes Agriculture (direct/indirect), Small Enterprises (direct/indirect), Retail Trade, Micro Credit, Education Loans, and Housing Loans.
Targets / Sub-TargetsOverall target: 40% of NBC; Agriculture: 18%; Weaker sections: 10%; DRI: 1%; Micro enterprises: 40% to smaller, 20% to larger; domestic vs foreign bank targets.
Recent DevelopmentsInterest subvention of 2% p.a. on short-term farmer loans; Farmers’ Advisory Committees in rural branches; Branch Advisory Committees with elected representatives including women leaders.
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In which JAIIB module is the “Priority Sector Advances” topic covered?

The topic Priority Sector Advances is part of the JAIIB PPB Paper, Module B, which focuses on core banking operations and credit functions. This section explains the different categories of priority sector lending, targets and sub-targets, and recent guidelines, making it essential for both exam preparation and practical banking knowledge.

FieldDetails
Paper / ModulePrinciples & Practices of Banking (PPB) – Module B
Focus AreasCore banking operations and credit functions
Topics Covered– Categories of Priority Sector (Agriculture, Small Enterprises, Retail Trade, Micro Credit, Education Loans, Housing Loans)
– Targets and Sub-targets (overall, agriculture, weaker sections, DRI, micro enterprises)
– Domestic vs. Foreign bank targets
– Recent developments and interest subvention schemes
– Advisory committees (Farmers’ and Branch Committees)
Exam Dates 2026May Cycle: 9th May 2026
November Cycle: 22nd Nov 2026

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What is the national credit council and its role in priority sector lending?

The National Credit Council (NCC) was formed to ensure that commercial banks actively participate in lending to priority sectors. The Government of India and RBI have set specific guidelines and targets to make sure these sectors get adequate funding. Over the years, these guidelines have evolved to include sub-targets for agriculture, weaker sections, and small enterprises.

  • In July 1968, the Government of India emphasised that commercial banks should increase financing to priority sectors like agriculture and small-scale industries.
  • The description of priority sectors was formalised in 1972 based on the report by the informal study group on statistics relating to advances to priority sectors constituted by the RBI in May 1971.
  • On recommendations of the working group on implementation of priority sector lending and the twenty-point economic programme by banks, commercial banks were advised to achieve priority sector lending of 40% of aggregate bank advances by 1985.
  • Sub-targets were specified for agriculture and weaker sections within the priority sector. Changes have continued over time for various bank groups.
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What are the categories of priority sector?

Priority sector lending covers sectors that are crucial for socio-economic development. These include agriculture, small enterprises, retail trade, micro credit, education, and housing loans.

SectorDetails
Agriculture (Direct and Indirect Finance)Direct finance: Short, medium, and long-term loans for agriculture and allied activities (dairy, fishery, piggery, poultry, beekeeping, etc.) given directly to individual farmers, SHGs, JLGs, or others (corporates, partnership firms, institutions) within certain limits.
Indirect finance: Loans for agriculture/allied activities given to distributors of inputs like fertilizers, pesticides, seeds, cattle/poultry feeds, and to State Electricity Boards or similar organizations.
Small Enterprises (Direct and Indirect Finance)Direct finance: Loans to micro and small manufacturing/service enterprises engaged in production, processing, preservation, or providing services. Investment limits apply (excluding land and building).
Indirect finance: Loans for marketing inputs/outputs of artisans, cottage industries, handlooms, or cooperatives of producers.
Retail TradeIncludes retail traders/private retail traders dealing in essential commodities (fair price shops) and consumer co-operative stores.
Micro CreditLoans or financial services of very small amounts, not exceeding Rs. 50,000 per borrower, directly or indirectly through SHG/JLG or NBFC/MFI for on-lending.
Education LoansLoans to individuals for education: up to Rs. 10 lakh for studies in India and Rs. 20 lakh for studies abroad. Loans to institutions are excluded.
Housing LoansLoans up to Rs. 20 lakh for purchase/construction of a dwelling per family (excluding loans to bank employees). Loans for repairs: up to Rs. 1 lakh in rural/semi-urban areas, and up to Rs. 2 lakh in urban/metropolitan areas.

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What are the targets and sub-targets for priority sector advances?

Banks are required to meet overall and specific targets for lending to priority sectors. Non-achievement affects regulatory approvals from RBI.

  • Overall main lending target: 40% of net bank credit (NBC).
  • Agricultural sector: 18% of NBC.
  • Weaker sections: 10% of NBC.
  • Differential Rate of Interest (DRI) scheme: 1% of previous year’s total advances.

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What are the targets for domestic and foreign banks?

Both domestic and foreign banks operating in India have to meet certain targets for lending to priority sectors. These targets ensure that important sectors like agriculture, small enterprises, and weaker sections get enough credit. The targets are slightly different for domestic banks and foreign banks, and they include overall lending as well as specific sub-targets.

Type of BankPriority Sector TargetAgriculture TargetSmall Enterprise TargetWeaker Sections Target
Domestic Commercial Banks40% of ANBC or credit equivalent of off-balance-sheet exposure, whichever is higher18% of ANBC (Indirect lending >4.5% not counted under 18%)Included in overall 40%10% of ANBC
Foreign Banks32% of ANBC or credit equivalent, whichever is higherNo target10% of ANBCNo target
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What are the details of small enterprise advances?

Small enterprise advances are loans given to micro and small manufacturing or service enterprises. These loans are counted under the overall priority sector target, and specific portions are earmarked for micro enterprises based on their investment in plant, machinery, or equipment. Both domestic and foreign banks follow these rules to support small businesses and promote economic growth.

  • 40% of total advances to small enterprises: micro manufacturing (investment ≤ Rs. 5 lakh), micro service enterprises (equipment ≤ Rs. 2 lakh).
  • 20% of total advances to small enterprises: micro manufacturing (investment > Rs. 5 lakh and ≤ Rs. 25 lakh), micro service enterprises (equipment > Rs. 2 lakh and ≤ Rs. 10 lakh).
  • 60% of small enterprise advances should go to micro enterprises. Same target applies to foreign banks.

What are the recent developments in priority sector lending?

The government and RBI have introduced reforms and incentives to strengthen PSL and support rural development.

  • Interest Subvention: Government provides 2% p.a. subvention on short-term production credit up to Rs. 3 lakh for farmers.
  • Calculation of Subvention: Computed on loan amount from disbursement/withdrawal to repayment or overdue date. Banks must provide short-term credit at 7% p.a. ROI.
  • Farmers’ Advisory Committee: RBI advises forming these committees in all rural branches to strengthen rural development and make extension services reliable and transparent.
  • Branch Advisory Committee: Comprises elected representatives, including women leaders from Panchayat Raj institutions in the branch service area. Meetings are mandatory quarterly and attended by the controlling bank official.

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FAQs

1. What is PSA?

Bank lending to priority sectors like agriculture, small enterprises, and weaker sections.

2. Who sets PSA targets?

The RBI, guided by the Government of India.

3. What is the overall PSA target for domestic banks?

40% of ANBC or off-balance-sheet exposure, whichever is higher.

4. What is the agriculture sub-target under PSA?

18% of ANBC for domestic banks; foreign banks have no target.

5. What is the DRI sub-target in PSA?

1% of previous year’s total advances under the Differential Rate of Interest scheme.