Critically examine whether Priority Sector Lending and the Lead Bank Scheme are still relevant in an era of near-universal banking access and digital credit.

Priority Sector Lending (PSL) requires banks to lend 40% of Adjusted Net Bank Credit to sectors such as agriculture and MSMEs [1]. The Lead Bank Scheme (LBS) was launched by RBI in 1969 after the Nariman Committee, and it coordinates credit district by district [2]. Today 99.92% of inhabited villages have a banking outlet within 5 km [3], so their relevance is being questioned. The new High Level Committee on Banking for Viksit Bharat has been asked to review both [4].

Why they remain relevant

• Access is not the same as credit: RBI's M.K. Jain Working Group (2019) found that banks reached only 41% of small and marginal farmers [5].
• Market failure persists: without a mandate, banks prefer low-risk loans. PSL shortfalls are not lost either, because they flow into NABARD's RIDF, which funds rural infrastructure [1].
• Regional equity: since 2021, RBI gives higher weight to lending in low-credit districts [6], and this needs district-level machinery to work.
• A ready district platform: LBS already brings banks and development agencies together. RBI's 2009 High Level Committee recommended that it continue [7].

Why their relevance is questioned

• Targets met only on paper: the Jain Group found that farm credit in some states was higher than their agricultural GDP. This suggests the money was diverted to non-farm uses [5].
• Digital credit: cash-flow-based digital lending can reach MSMEs without quotas, while rigid targets can misallocate capital.
• An outdated design: LBS has had no comprehensive review since 2009 [7]. A single national target also ignores wide regional differences.

Way forward

• Judge PSL by outcomes, meaning whether loans reach small farmers in low-credit districts, rather than by national percentages.
• Assess the 2021 district framework with data before setting new targets [6].
• Turn LBS into a data-driven district credit plan that includes digital lenders. This matches the Committee's aim of "inclusive, balanced and data-driven credit delivery" [4].

PSL and LBS are not obsolete, but their job has changed: from opening branches to making sure credit is adequate and actually reaches people. If they are updated with district data and digital tools, they can help deliver SDG 8.10 on access to finance and an inclusive Viksit Bharat @2047.