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FAQs on Master Directions on Priority Sector Lending (PSL) Guidelines
Last Updated: May 2026 | Based on RBI Master Directions 2025 & Amendment Directions 2026
PART I (1–10)
Basic Concepts of Priority Sector Lending
1. Which circular governs the current Priority Sector Lending framework?
A. RBI Master Directions 2020
B. RBI Master Directions PSL Targets and Classification Directions 2025
C. RBI Master Directions 2018
D. RBI Master Directions 2016
Answer: B
Explanation: RBI issued revised Master Directions on Priority Sector Lending effective April 1, 2025, replacing the 2020 guidelines vide circular dated March 24, 2025, further amended on January 19, 2026.
2. PSL Master Directions 2025 are applicable to:
A. Commercial banks only
B. Regional Rural Banks only
C. All commercial banks including RRBs, SFBs, LABs and UCBs except Salary Earners Banks
D. Foreign banks only
Answer: C
Explanation: The Directions apply to all commercial banks including Regional Rural Banks, Small Finance Banks, Local Area Banks and Urban Co-operative Banks, except Salary Earners Banks.
3. The overall PSL target for domestic scheduled commercial banks is:
A. 30% of ANBC
B. 40% of ANBC
C. 50% of ANBC
D. 35% of ANBC
Answer: B
Explanation: Domestic scheduled commercial banks are required to lend 40% of Adjusted Net Bank Credit (ANBC) or Credit Equivalent of Off-Balance Sheet Exposures (CEOBSE), whichever is higher, to priority sectors.
4. The revised PSL target for Small Finance Banks (SFBs) under 2025 Directions is:
A. 75% of ANBC
B. 50% of ANBC
C. 60% of ANBC
D. 40% of ANBC
Answer: C
Explanation: The PSL target for Small Finance Banks has been revised from 75% to 60% of their Adjusted Net Bank Credit under the 2025 Directions.
5. Which of the following sectors are covered under Priority Sector Lending?
A. Agriculture
B. MSMEs and Education
C. Renewable Energy and Housing
D. All of the above
Answer: D
Explanation: PSL framework covers agriculture, MSMEs, export credit, education, housing, social infrastructure, renewable energy and weaker sections.
6. Under PSL Directions 2025, transgender persons have been:
A. Excluded from PSL benefits
B. Included in the list of eligible borrowers under weaker sections
C. Covered under MSMEs only
D. Not mentioned
Answer: B
Explanation: The Directions 2025 include transgender persons in the list of eligible borrowers under the weaker sections category.
7. The loan ceiling for women beneficiaries under PSL 2025 has been revised to:
A. ₹1,00,000
B. ₹1,50,000
C. ₹2,00,000
D. ₹2,50,000
Answer: C
Explanation: The loan ceiling for women beneficiaries has been increased to ₹2,00,000 from the earlier ₹1,00,000 ceiling under the 2025 Directions.
8. Under PSL 2025, loans against hypothecation or pledge of agricultural produce against electronic warehouse receipts have a cap of:
A. ₹50,00,000
B. ₹75,00,000
C. ₹90,00,000
D. ₹1,00,00,000
Answer: C
Explanation: The cap has been increased to ₹90,00,000 from earlier ₹75,00,000 for loans against hypothecation or pledge of agricultural produce against electronic warehouse receipts.
9. Loans to National Cooperative Development Corporation (NCDC) for on-lending to cooperative societies are classified as:
A. Not eligible for PSL
B. Eligible for PSL classification
C. Eligible only for agriculture PSL
D. Eligible only for MSME PSL
Answer: B
Explanation: Under PSL Amendment Directions 2026, loans provided by banks to NCDC for on-lending to cooperative societies are now officially classified as PSL, applicable to loans sanctioned after January 19, 2026.
10. To address regional disparities, a higher weight of 125% is assigned to incremental PSL credit in districts where per capita PSL is:
A. Less than ₹5,000
B. Less than ₹7,000
C. Less than ₹9,000
D. Less than ₹11,000
Answer: C
Explanation: With effect from FY 2024-25, a higher weight of 125% is assigned to incremental priority sector credit in districts where the credit flow is comparatively lower, i.e., per capita PSL less than ₹9,000.
PART II (11–20)
ANBC, Targets & Classification
11. ANBC stands for:
A. Annual Net Banking Credit
B. Adjusted Net Bank Credit
C. Average Net Bank Credit
D. Assessed Net Bank Credit
Answer: B
Explanation: ANBC stands for Adjusted Net Bank Credit, which is used as the base for computing PSL targets.
12. Under PSL Amendment Directions 2026, which of the following has been excluded from ANBC computation?
A. Agricultural loans
B. Long term bonds and advances funded through FCNR(B) and NRE deposits
C. MSME loans
D. Housing loans
Answer: B
Explanation: The 2026 Amendment clarified that certain long-term bonds and advances funded through FCNR(B) and NRE deposits are excluded from ANBC computation.
13. PSL targets are computed on the basis of ANBC as on:
A. Current year end
B. Corresponding date of preceding year
C. Beginning of current year
D. Average of last 3 years
Answer: B
Explanation: PSL targets and sub-targets are computed on the basis of ANBC/CEOBSE as on the corresponding date of the preceding year.
14. Under on-lending mechanism, PSL classification is available up to overall limit of:
A. 3% of individual bank's total PSL
B. 5% of individual bank's total PSL of previous financial year
C. 10% of individual bank's total PSL
D. 15% of individual bank's total PSL
Answer: B
Explanation: Loans through on-lending mechanism will be eligible for PSL classification up to an overall limit of 5% of individual bank's total priority sector lending of the previous financial year.
15. External auditor certification for PSL is required to ensure:
A. Maximum profit
B. Same underlying loan exposure is not claimed as PSL by both originating bank and intermediary
C. Minimum interest rates
D. Maximum loan disbursement
Answer: B
Explanation: RBI requires banks to obtain certification from external auditors to ensure that the same underlying loan exposure is not claimed as PSL by both the originating bank and the intermediary.
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PART III (16–25)
Co-lending, Securitisation & Recent Amendments
16. Banks are permitted to enter into co-lending arrangements for lending to priority sectors as per:
A. RBI Commercial Banks Transfer and Distribution of Credit Risk Directions 2025
B. RBI Master Circular 2020
C. Banking Regulation Act 1949
D. RBI Act 1934
Answer: A
Explanation: Banks are permitted to enter into co-lending arrangements for lending to priority sectors as per RBI (Commercial Banks – Transfer and Distribution of Credit Risk) Directions, 2025.
17. Under PSL 2025, export credit to which sectors is treated as PSL loans?
A. Agriculture only
B. MSMEs only
C. Agriculture and MSMEs
D. All sectors
Answer: C
Explanation: Banks are allowed to treat export credit to agriculture and MSMEs as PSL loans under the 2025 Directions.
18. Under PSL Directions 2025, the interest margin cap on PSL-linked securitisation exposures has been:
A. Increased
B. Decreased
C. Removed
D. Kept unchanged
Answer: C
Explanation: Directions 2025 remove the interest margin cap that previously applied to certain PSL-linked securitisation exposures, aligning with RBI's approach in microfinance regulation.
19. Loans against gold jewellery originated by NBFCs are:
A. Eligible for PSL classification
B. Explicitly excluded from PSL eligibility
C. Eligible only for agriculture PSL
D. Eligible only up to ₹1 lakh
Answer: B
Explanation: Loans against gold jewellery originated by NBFCs remain explicitly excluded from PSL eligibility under the 2025 Directions.
20. A lower weight of 90% is assigned for incremental PSL credit in districts with:
A. Low credit flow
B. Comparatively higher flow of priority sector credit
C. No banking presence
D. Only rural population
Answer: B
Explanation: A lower weight of 90% is assigned for districts with comparatively higher flow of priority sector credit as a dis-incentive framework to address regional disparities.
21. PSL Amendment Directions 2026 were issued vide Circular No.:
A. RBI/FIDD/2025-26/196 dated January 19, 2026
B. RBI/FIDD/2024-25/128 dated March 24, 2025
C. RBI/FIDD/2023-24/100 dated April 1, 2024
D. RBI/FIDD/2022-23/50 dated January 1, 2023
Answer: A
Explanation: RBI issued PSL Amendment Directions 2026 vide Circular No. RBI/FIDD/2025-26/196 dated January 19, 2026.
22. Which of the following entities are exempted from adjustments of weights in PSL achievement?
A. Public sector banks
B. Private sector banks
C. RRBs, UCBs, LABs and foreign banks including Wholly Owned Subsidiaries
D. Small Finance Banks
Answer: C
Explanation: RRBs, UCBs, LABs and foreign banks including Wholly Owned Subsidiaries are exempted from adjustments of weights in PSL achievement due to their limited area of operation.
23. For newly licensed banks, the cap on on-lending mechanism is applicable:
A. After 3 years of operations
B. On an on-going basis during its first year of operations
C. Only after achieving 40% PSL target
D. Not applicable to new banks
Answer: B
Explanation: In case of a newly licensed bank, the cap on on-lending mechanism shall be applicable on an on-going basis during its first year of operations.
24. The district-wise incentive framework for PSL credit flow is valid up to:
A. FY 2024-25
B. FY 2025-26
C. FY 2026-27
D. FY 2027-28
Answer: C
Explanation: The district-wise incentive framework for PSL credit flow is valid up to FY 2026-27, subject to review thereafter.
25. The PSL Master Directions 2025 supersede which earlier directions?
A. PSL Directions 2015
B. PSL Directions 2018
C. PSL Directions 2020
D. PSL Directions 2022
Answer: C
Explanation: The Master Directions RBI (Priority Sector Lending – Targets and Classification) Directions 2025, effective April 1, 2025, supersede the previous 2020 directions.
Disclaimer: This article is for educational purposes only. Always refer to the official RBI website at www.rbi.org.in for the most current guidelines.