The RBI (Priority Sector Lending) Amendment Directions 2026 were notified by the Reserve Bank of India on 19 January 2026 and amend the Priority Sector Lending (Targets and Classification) Directions, 2025. They realign how banks compute the base for priority sector targets, rework the treatment of on-lending, co-lending and securitisation, and update a set of sector limits and cross-references. Most of the text is harmonisation, tying the 2025 priority sector framework to the wave of other Master Directions the Reserve Bank issued through 2025. The targets themselves stay anchored at 40 per cent of adjusted net bank credit for commercial banks, but the rules for measuring that credit have shifted.
This article sets out what the Priority Sector Lending Amendment Directions 2026 changed, who has to act on them, and where the older 2025 figures still apply.
Priority sector lending is the share of a bank’s credit that the Reserve Bank requires it to direct toward agriculture, micro, small and medium enterprises, education, housing, renewable energy, social infrastructure and weaker sections. The obligation is not new. What changed on 19 January 2026 is the fine print of how a bank sizes its lending base and counts certain routes toward the target.
The amendment arrived barely nine months after the parent Directions took effect on 1 April 2025. That timing is not an accident of policy churn. Through 2025 the Reserve Bank rebuilt several adjacent rulebooks, on capital adequacy, resource raising, large exposures, securitisation and interest rates, and the priority sector Directions were left citing provisions that those rewrites had superseded. The 2026 amendment closes that gap.
Regulation numbers below are drawn from published renderings of the notified text. Where a figure carries over from the 2025 Directions rather than originating in the 2026 amendment, that is flagged, because several summaries run the two instruments together.
Why did the RBI issue the Priority Sector Lending Amendment Directions 2026?
The Reserve Bank of India issued the Priority Sector Lending Amendment Directions 2026 on 19 January 2026 to realign the 2025 priority sector framework with a set of other Master Directions it had reissued through 2025, not to rewrite priority sector policy. The instrument carries Notification No. RBI/FIDD/2025-26/196 and amends the Reserve Bank of India (Priority Sector Lending, Targets and Classification) Directions, 2025.
The amendment is best read as maintenance rather than reform. The 2025 Directions had themselves consolidated and replaced the 2020 priority sector rules, and they took effect on 1 April 2025. Within the same year the Reserve Bank issued new Directions on capital adequacy, resource raising, concentration risk, securitisation, transfer of loan exposures and interest rates. Each of those touched a provision the priority sector Directions relied on, so the cross-references needed to be reset.
What does the priority sector framework require?
The priority sector framework requires every covered bank to lend a fixed proportion of its adjusted net bank credit to sectors the government treats as national priorities. The headline target is 40 per cent of adjusted net bank credit, or the credit equivalent of off-balance-sheet exposure, whichever is higher, for commercial banks. Regional rural banks and small finance banks carry higher targets, and urban co-operative banks sit at 60 per cent.
The covered sectors are set out in the 2025 Directions and are unchanged by the amendment. They run across agriculture, micro, small and medium enterprises, export credit, education, housing, social infrastructure, renewable energy and the weaker sections category. The 2025 Directions had already widened weaker sections to include transgender persons and had raised the loan ceiling for individual women beneficiaries to ₹2,00,000. Those inclusions remain.
What triggered an amendment so soon after the 2025 Directions?
The trigger was a sequence of other 2025 rulebooks that left the priority sector Directions pointing at rules that no longer existed. When the Reserve Bank reissued the capital adequacy and large exposure frameworks, the priority sector method for counting off-balance-sheet exposure still referred to the earlier versions. The 2026 amendment updates each of those pointers so a compliance team reads one current rule rather than chasing a repealed one.
This pattern of consolidation-then-realignment has run across financial regulation through 2025 and 2026. The securities market saw the same housekeeping when the Reserve Bank’s counterpart regulator rebuilt its intermediary rules, as our explainer on the SEBI (Stock Brokers) Regulations 2026 sets out. Reading the priority sector amendment in that light explains why so many changes are cross-references rather than new obligations.
The 2025 to 2026 change map for priority sector lending
The amendment touches roughly a dozen paragraphs of the 2025 Directions, and they fall into three groups. The first group changes how a bank measures the credit base on which its target is calculated. The second changes how much of a bank’s lending through third parties counts toward the target. The third updates sector limits and the cross-references that connect the priority sector Directions to the rest of the rulebook.
The change map below sets each amended area against what it replaces, so a reader can see at a glance which provisions moved.
The practical weight is not spread evenly across the three groups. The computation changes affect every covered bank because they alter the denominator of the target ratio. The on-lending and co-lending changes matter most to banks that meet their target through partnerships with non-banking financial companies or co-operative institutions. The sector-limit updates are narrow but concrete, and a lender in health infrastructure or microfinance will feel them directly.
Priority sector lending: what the 2026 amendment moved
The main amended provisions of the 2025 Directions, against what each replaced
ProvisionUnder the 2025 DirectionsAfter the 2026 amendment
ProvisionLong-term bonds (Para 6.1)
BeforeExemption computed on an older reference basis
AfterNetted from ANBC per the Resource Raising Norms Directions, 2025
ProvisionFCNR(B) / NRE deposits (Para 6.1)
BeforeIncrement read inconsistently across banks
AfterFootnote fixes the 7 March 2014 base; exclusion capped at the eligible deposit amount
ProvisionOff-balance-sheet exposure (Para 6.2)
BeforeReferred to the superseded capital rules
AfterComputed under the Large Exposures Framework and 2025 Capital Adequacy Directions
ProvisionSecuritisation (new Para 18A)
BeforePredecessor circular basis
AfterExternal auditor certification plus sample checks; 2025 securitisation and loan-transfer Directions
ProvisionOn-lending to NCDC (new Para 24A)
BeforeNot recognised as priority-sector-eligible
AfterEligible with quarterly CAG-empanelled auditor certificates, within the 5% on-lending cap
ProvisionCo-lending (Para 26)
BeforeEarlier co-lending circulars
AfterPoints to the Commercial Banks (Transfer and Distribution of Credit Risk) Directions, 2025; legacy books run to repayment
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What changed in how banks compute ANBC and off-balance-sheet exposure?
The amendment reworked Paragraph 6.1 and Paragraph 6.2 of the 2025 Directions, which set how a bank arrives at adjusted net bank credit and the credit equivalent of its off-balance-sheet exposure. These two figures form the denominator against which the 40 per cent target is measured, so a change here moves the target in rupee terms for every covered bank.
How are long-term infrastructure and affordable-housing bonds now treated?
Long-term bonds issued to fund infrastructure and affordable housing are now netted from adjusted net bank credit on the basis of the Resource Raising Norms Directions, 2025. Paragraph 6.1 previously pointed to the older exemption rule for such bonds. The amended item ties the exemption to the eligible amount computed under the 2025 resource raising rules, and it applies to commercial banks and small finance banks alike.
The effect is to standardise a figure that banks had been computing off different reference points. A bank that had raised qualifying long-term bonds must now recompute the exempt portion under the 2025 method before it fixes its adjusted net bank credit for the period. The direction of the change is toward a single, current basis for the exemption rather than a substantive expansion or contraction of it.
What does the new footnote on FCNR(B) and NRE deposits say?
A footnote added to Paragraph 6.1 clarifies how incremental advances funded out of FCNR(B) and NRE deposit resources are calculated for exclusion from adjusted net bank credit. The footnote fixes the reference date at 7 March 2014 and caps the exclusion at the eligible deposit amount. This resolves a point that banks had been reading inconsistently, some measuring the increment from a different base.
For the credit equivalent of off-balance-sheet exposure under Paragraph 6.2, the amendment routes the computation through the Large Exposures Framework and the revised 2025 capital adequacy Directions. The earlier text referred to the superseded capital rules. A bank now reads its off-balance-sheet numbers off the current framework across all covered entity types, including commercial banks, small finance banks, urban co-operative banks, regional rural banks and local area banks.
How do the Priority Sector Lending Amendment Directions 2026 treat small finance banks and the targets?
The overall priority sector target is unchanged: commercial banks must direct 40 per cent of adjusted net bank credit, or the credit equivalent of off-balance-sheet exposure, whichever is higher, to the priority sector. The amendment redrafts the targets table in Paragraph 7 to sit cleanly against the recomputed credit base, rather than to move the headline percentage for commercial banks.
Small finance banks carry a higher priority sector target than commercial banks, set at 60 per cent of adjusted net bank credit. This higher figure reflects the mandate small finance banks were licensed to serve, which is credit to unserved and underserved segments. Readers should note that the 60 per cent small finance bank figure is the position under the current consolidated framework; the precise history of that percentage, including any earlier level, should be confirmed against the notified text before it is relied on in advice, because published summaries of the 2025 and 2026 instruments differ on when it took its present form.
The category targets that sit alongside the commercial bank figure are the same ones the 2025 Directions carried. Regional rural banks are held to 75 per cent of adjusted net bank credit, and urban co-operative banks to 60 per cent. These are targets on the covered institutions, and the sub-targets for agriculture and weaker sections within them remain part of the same table the amendment redrafted.
What did the amendment change for securitisation, on-lending and co-lending?
The amendment updated the three routes by which a bank can count credit it did not originate directly toward its priority sector target. Each route lets a bank reach borrowers it would not lend to on its own book, and each carries its own eligibility and reporting conditions.
How does the amendment treat securitisation and loan transfers?
Securitisation and loan-transfer claims may now rest on an external auditor’s certification supported by sample checks. A new Paragraph 18A allows a bank to rely on that certification when it counts securitised priority sector assets toward its target, and the cross-references move to the 2025 Directions on securitisation of standard assets and on transfer of loan exposures. The earlier text pointed to the predecessor circulars.
The shift to auditor certification with sampling is a compliance-process change rather than an eligibility expansion. The pool of assets that qualifies is defined by the same priority sector categories as before. What changes is the evidence a bank keeps to support the claim, which now follows a defined certification route that the Reserve Bank can test on inspection.
What changed for on-lending through NBFCs and co-operatives?
On-lending is where the amendment adds a genuinely new eligibility. A new Paragraph 24A allows bank loans to the National Co-operative Development Corporation, for on-lending to co-operatives, to count as priority sector lending, subject to quarterly certificates from an auditor empanelled with the Comptroller and Auditor General. This opens a route to the co-operative credit system that the earlier text did not recognise.
The aggregate cap on on-lending is retained. Bank credit that reaches the ultimate borrower through non-banking financial companies, housing finance companies or the National Co-operative Development Corporation still counts toward the priority sector target only up to 5 per cent of a bank’s total priority sector lending in a year, under Paragraph 25. The new co-operative route therefore competes for space within the same 5 per cent ceiling rather than sitting outside it. For the broader picture of how bank credit and stressed assets move through the recovery system, our note on the role of the Insolvency and Bankruptcy Code in reviving banks from non-performing assets sets out the adjacent framework.
Co-lending is simplified rather than expanded. Paragraph 26 now points to the Commercial Banks (Transfer and Distribution of Credit Risk) Directions, 2025 for the co-lending framework, and arrangements entered into under the earlier co-lending circulars remain eligible until the underlying loans are repaid. A bank running legacy co-lending books does not have to unwind them, but new arrangements follow the 2025 credit-risk Directions.
Other priority-sector limits and cross-references the amendment updated
The remaining changes are a mix of sector limits and housekeeping cross-references. None of them rewrites priority sector policy, but a lender active in the affected sectors has to read the current figure rather than the 2025 one.
Health infrastructure sees a stated limit for loans to health facilities in Tier II to Tier VI centres, expressed as a per-borrower ceiling in the amended text. Microfinance references are re-anchored to the Reserve Bank’s 2025 Directions for non-banking financial company microfinance institutions, so a bank classifying microfinance advances reads the current definition. The bar on levying a service charge on priority sector loans up to ₹50,000, applied per member for self-help and joint liability groups, is retained.
The interest-rate reference in Paragraph 30 moves to the Interest Rate on Advances Directions, 2025, and the reporting timelines in Paragraph 28 are restated as quarterly returns within fifteen days of the quarter end and an annual return within one month of the year end. The district annexes that list weaker-section and other geographies are updated to reflect state reorganisation, including changes to the Rajasthan district list. These are the kind of pointers that a compliance calendar depends on, and the amendment brings them current.
This realignment mirrors what the Reserve Bank has done across its foreign-exchange rulebook in the same period. The rebuild of the authorised-person framework, covered in our explainer on the FEMA (Authorised Persons) Regulations 2026, followed the same logic of consolidating older circulars into a single current instrument and updating every downstream reference to match.
Who must act on the Priority Sector Lending Amendment Directions 2026?
The amendment binds every entity covered by the 2025 priority sector Directions, which means all commercial banks, including regional rural banks, along with small finance banks, urban co-operative banks and local area banks. It took effect on 19 January 2026, so the current reporting period is the first to be measured against the amended rules.
The practical work sits with the compliance and credit teams that compute priority sector numbers. Adjusted net bank credit has to be recomputed on the new treatment of long-term bonds and the FCNR(B) and NRE deposit footnote. The off-balance-sheet method has to be refreshed against the current large exposure and capital adequacy Directions. A bank counting securitised assets has to adopt the auditor-certification-with-sampling route, and a bank exploring on-lending has to test whether the new co-operative channel fits within its 5 per cent ceiling.
For lawyers and compliance officers entering this area, the priority sector framework is a compact entry point into banking regulation, because it connects capital, exposure, securitisation and reporting rules in one place. Building a practice around it rewards the same skills the sector values elsewhere, and LawSikho’s guide on how to become a banking and finance lawyer in India maps the route in. Professionals who service overseas finance and accounting clients remotely will find an adjacent skill market described in Skill Arbitrage’s note on bookkeeping for small businesses in the US.
The deadline discipline is the part most likely to catch a team off guard, because the amendment took immediate effect without a transition window for the computation changes. A bank that continues to size adjusted net bank credit on the 2025 basis will report the wrong denominator, and the error compounds across every sub-target measured against it. Diarising the recomputation before the next return is the single most useful step.
After the 2026 amendment: a compliance re-check list
What a bank’s compliance and credit teams update before the next return
1
Recompute ANBC
Apply the new long-term-bond treatment and the FCNR(B) / NRE footnote before fixing adjusted net bank credit.
2
Refresh CEOBSE
Re-derive off-balance-sheet exposure under the Large Exposures Framework and the 2025 Capital Adequacy Directions.
3
Update securitisation evidence
Move to the external-auditor-certification-with-sampling route for securitised priority sector assets.
4
Test on-lending channels
Check whether the new NCDC co-operative route fits within the 5% aggregate on-lending ceiling.
5
Confirm co-lending references
Point new co-lending to the 2025 credit-risk Directions; run legacy books to repayment.
6
Align the reporting calendar
Quarterly returns within 15 days, annual within one month; update the district annexes used.
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Frequently asked questions
What are the RBI (Priority Sector Lending) Amendment Directions 2026?
They are the amendment the Reserve Bank of India notified on 19 January 2026, as Notification No. RBI/FIDD/2025-26/196, to amend the Priority Sector Lending (Targets and Classification) Directions, 2025. They realign how banks compute the base for priority sector targets, update the treatment of on-lending, co-lending and securitisation, and refresh a set of sector limits and cross-references.
When did the Priority Sector Lending Amendment Directions 2026 come into effect?
They came into effect on 19 January 2026, the date of the notification. There is no separate transition window for the computation changes, so the reporting period current on that date is the first measured against the amended rules.
What is the overall priority sector lending target for banks?
Commercial banks must direct 40 per cent of adjusted net bank credit, or the credit equivalent of off-balance-sheet exposure, whichever is higher, to the priority sector. Regional rural banks are held to 75 per cent, and urban co-operative banks and small finance banks to 60 per cent, under the 2025 Directions as amended.
Did the 2026 amendment change the small finance bank priority sector target?
The amendment redrafted the targets table in Paragraph 7 so it reads against the recomputed credit base. Small finance banks carry a 60 per cent target under the current framework. Whether that figure was set in the 2025 Directions or adjusted by the 2026 amendment should be confirmed against the notified text, because published summaries differ on the point.
Are bank loans to the NCDC now eligible as priority sector lending?
Yes. A new Paragraph 24A allows bank loans to the National Co-operative Development Corporation, for on-lending to co-operatives, to count as priority sector lending, subject to quarterly certificates from a Comptroller and Auditor General empanelled auditor. Such lending competes for space within the existing 5 per cent aggregate on-lending ceiling.
Who do the Priority Sector Lending Amendment Directions 2026 apply to?
They apply to all commercial banks, including regional rural banks, and to small finance banks, urban co-operative banks and local area banks. In practice the obligations fall on the compliance and credit teams that compute and report priority sector numbers for those institutions.
References
- Reserve Bank of India (Priority Sector Lending, Targets and Classification) (Amendment) Directions, 2026, Notification No. RBI/FIDD/2025-26/196, FIDD.CO.PSD.BC.No.11/04.09.001/2025-26, dated 19 January 2026. Text as reproduced by TaxGuru.
- Reserve Bank of India (Priority Sector Lending, Targets and Classification) Directions, 2025, effective 1 April 2025. Text as reproduced by TaxGuru.
- Banking Regulation Act, 1949, Section 21 (power of the Reserve Bank to control advances by banking companies). Reserve Bank of India.
This article is for informational and educational purposes only and does not constitute legal advice. For advice on a specific priority sector compliance or computation question, consult a qualified professional.
