Chapter 36: Priority Sector Advances (JAIIB – Paper 2)

1. Priority Sector Lending (PSL) guidelines are applicable to which category of banks in India?

  • A. Only Public Sector Banks
  • B. Only Private Sector Banks
  • C. All Scheduled Commercial Banks (excluding RRBs & Payments Banks, with separate norms for SFBs)
  • D. Only Foreign Banks with more than 20 branches
PSL guidelines are applicable to all Scheduled Commercial Banks, including Foreign Banks (with specific targets based on branch presence), but not to RRBs and Payments Banks which have separate norms.

2. As per RBI guidelines, the overall Priority Sector Lending (PSL) target for Domestic Scheduled Commercial Banks and Foreign Banks with more than 20 branches is:

  • A. 40% of Adjusted Net Bank Credit (ANBC) or Credit Equivalent of Off-Balance Sheet Exposure, whichever is higher
  • B. 30% of ANBC
  • C. 20% of ANBC
  • D. 50% of ANBC
Domestic Scheduled Commercial Banks and Foreign Banks with more than 20 branches must achieve a PSL target of 40% of ANBC or Credit Equivalent of Off-Balance Sheet Exposure, whichever is higher.

3. What is the sub-target for Agriculture under Priority Sector Lending for domestic commercial banks?

  • A. 10% of ANBC
  • B. 12% of ANBC
  • C. 20% of ANBC
  • D. 18% of ANBC
The Agriculture sub-target under PSL for domestic commercial banks is 18% of ANBC, with a focus on small and marginal farmers.

4. Within the Agriculture target of 18%, what is the sub-target for lending to Small and Marginal Farmers?

  • A. 4% of ANBC
  • B. 9% of ANBC
  • C. 12% of ANBC
  • D. 15% of ANBC
Out of the 18% Agriculture target, 9% of ANBC is earmarked for Small and Marginal Farmers to ensure credit flow to weaker sections.

5. What is the sub-target for lending to Micro Enterprises under Priority Sector Lending norms?

  • A. 3% of ANBC
  • B. 5% of ANBC
  • C. 7.5% of ANBC
  • D. 10% of ANBC
Banks must ensure that 7.5% of ANBC is provided to Micro Enterprises under the Priority Sector category.

6. For Weaker Sections, what is the minimum sub-target prescribed under PSL for domestic commercial banks?

  • A. 12% of ANBC
  • B. 9% of ANBC
  • C. 15% of ANBC
  • D. 18% of ANBC
The sub-target for Weaker Sections under PSL is 12% of ANBC for domestic commercial banks.

7. Which of the following is NOT a category under Priority Sector Lending?

  • A. Agriculture
  • B. Education
  • C. Export Credit
  • D. Real Estate Development
Priority Sector includes categories such as Agriculture, MSME, Education, Housing, Export Credit, Renewable Energy, and Weaker Sections. Real Estate Development is not part of PSL.

8. Which of the following is a newly added category in Priority Sector Lending (PSL)?

  • A. Infrastructure Finance
  • B. Renewable Energy
  • C. Personal Loans
  • D. Capital Market Exposure
Renewable Energy, including loans for solar, wind, and biomass projects, has been added as a category under PSL to promote sustainable finance.

9. If a bank fails to achieve its Priority Sector Lending targets, it is required to contribute to which fund?

  • A. CRR with RBI
  • B. Consolidated Fund of India
  • C. Rural Infrastructure Development Fund (RIDF)
  • D. Prime Minister’s Relief Fund
Banks falling short of PSL targets are required to deposit the shortfall amount in RIDF, managed by NABARD, or in other funds as specified by RBI.

10. Priority Sector Lending Certificates (PSLCs) allow banks to:

  • A. Achieve PSL compliance by purchasing surplus from other banks
  • B. Raise additional capital from RBI
  • C. Issue debentures backed by PSL loans
  • D. Convert PSL loans into securitized assets
PSLCs are instruments that allow banks with surplus PSL achievement to sell certificates to banks with shortfall, enabling compliance without direct lending.

11. Which regulatory body manages the RIDF where banks deposit shortfalls in PSL targets?

  • A. RBI
  • B. SEBI
  • C. Ministry of Finance
  • D. NABARD
NABARD manages the RIDF (Rural Infrastructure Development Fund), where banks contribute their PSL shortfalls to finance rural infrastructure projects.

12. A domestic scheduled commercial bank with ANBC of ₹10,000 crore achieved only ₹3,200 crore in PSL lending. What is the minimum shortfall to be deposited in RIDF?

  • A. ₹200 crore
  • B. ₹800 crore
  • C. ₹500 crore
  • D. ₹1,000 crore
PSL target = 40% of ₹10,000 crore = ₹4,000 crore. Actual lending = ₹3,200 crore. Shortfall = ₹800 crore → To be deposited in RIDF.

13. As per RBI guidelines, loans to individuals for education under PSL are eligible up to which limit?

  • A. ₹10 lakh in India and ₹15 lakh abroad
  • B. ₹15 lakh in India and ₹20 lakh abroad
  • C. ₹20 lakh in India and ₹30 lakh abroad
  • D. ₹25 lakh in India and ₹35 lakh abroad
Education loans are classified under PSL up to ₹20 lakh for studies in India and ₹30 lakh for studies abroad.

14. Loans to individuals for housing under Priority Sector are eligible up to what limit in metropolitan centres (population >10 lakh)?

  • A. ₹35 lakh, provided the overall cost of dwelling unit does not exceed ₹45 lakh
  • B. ₹25 lakh, irrespective of dwelling cost
  • C. ₹50 lakh, with no restriction on cost
  • D. ₹40 lakh, provided the unit is self-occupied
In metro centres, housing loans up to ₹35 lakh qualify as PSL, provided the total cost of the dwelling does not exceed ₹45 lakh.

15. For renewable energy, bank loans up to what amount are eligible under PSL?

  • A. ₹10 crore for individuals
  • B. ₹5 crore for corporates
  • C. ₹20 crore for government projects
  • D. ₹30 crore for renewable energy projects (including solar, biomass, wind)
Loans up to ₹30 crore for renewable energy projects qualify as PSL. For individual households, the limit is ₹10 lakh.

16. Loans under PSL must be given at interest rates:

  • A. At concessional rates fixed by RBI
  • B. As per the bank’s Board-approved policy and within RBI’s overall guidelines on interest rates
  • C. At fixed 8% per annum for all PSL loans
  • D. Linked only to repo rate
RBI does not fix specific concessional rates for PSL loans; interest rates are decided by individual banks subject to their Board-approved policy and RBI’s fair lending guidelines.

17. Loans to Self Help Groups (SHGs) and Joint Liability Groups (JLGs) are classified under which category of Priority Sector?

  • A. Agriculture and Weaker Sections
  • B. MSME only
  • C. Housing only
  • D. Export Credit
Loans to SHGs and JLGs are classified under Agriculture and Weaker Sections as per PSL guidelines, to support inclusive growth.

18. End-use verification of PSL loans is required to:

  • A. Report to SEBI
  • B. Avoid duplication of accounts
  • C. Achieve higher credit growth
  • D. Ensure loans are actually used for the intended purpose
Banks are required to carry out end-use verification to ensure that loans are utilized for the intended purpose and not diverted, especially in PSL categories.

19. Banks are allowed to classify their investments in securitized assets or direct assignments of eligible priority sector loans as PSL, provided:

  • A. The pool consists of any type of retail loans
  • B. The underlying assets are loans that qualify under priority sector
  • C. The loans are only corporate advances
  • D. RBI gives prior approval
Banks can classify investments in securitized assets or direct assignments towards PSL only when the underlying assets themselves qualify as priority sector loans.

20. Under the Co-Lending Model (CLM), scheduled commercial banks can co-lend with which type of institutions for priority sector lending?

  • A. Insurance companies
  • B. Payment banks
  • C. NBFC-ND-SI only
  • D. All registered NBFCs (including HFCs) with RBI guidelines
Banks are permitted to co-lend with all registered NBFCs, including Housing Finance Companies (HFCs), under RBI’s Co-Lending Model guidelines for PSL.

21. Inter-Bank Participation Certificates (IBPCs) are used by banks primarily to:

  • A. Manage short-term liquidity and achieve PSL targets
  • B. Raise capital from RBI
  • C. Fund long-term infrastructure projects
  • D. Convert NPA loans into securities
IBPCs allow banks to manage liquidity and meet PSL shortfalls by purchasing participation from other banks for a short period.

22. Which of the following statements is TRUE regarding Priority Sector Lending Certificates (PSLCs)?

  • A. They are tradable on stock exchanges
  • B. They transfer credit risk of the underlying loans
  • C. They are traded on RBI’s e-Kuber platform without transfer of credit risk
  • D. They can be purchased only by NBFCs
PSLCs are traded on RBI’s e-Kuber platform. They enable banks to meet PSL targets without transferring the credit risk of underlying loans.

23. PSL targets are monitored by RBI based on which type of reporting submitted by banks?

  • A. Quarterly and annual returns submitted through RBI’s automated reporting system
  • B. Only annual audited statements
  • C. Half-yearly reports to SEBI
  • D. Ad hoc reports at RBI’s discretion
Banks must submit detailed PSL achievement reports quarterly and annually through RBI’s automated reporting systems to ensure compliance monitoring.

24. Which of the following loans will NOT qualify as Priority Sector Lending?

  • A. Loan of ₹25 lakh to a farmer for solar irrigation pumps
  • B. Loan of ₹5 crore to a corporate for setting up a luxury hotel
  • C. Loan of ₹30 lakh to a student for study abroad
  • D. Loan of ₹20 lakh to SHG members
Loans for luxury hotels are not included in PSL. Agriculture, renewable energy, education, and SHG loans fall under PSL categories.

Post a Comment