RBI Raises Cap for Housing, Solar Panel Loans Under Priority Sector Lending 

The RBI has raised the cap on housing and solar panel loans to qualify for priority sector lending. This will help banks meet the PSL norms and may also help borrowers of such loan get access to cheaper interest rates.

The RBI, through a notification issued on Monday, announced changes to the PSL guidelines, which will be effective from Apr 1, 2025.

These revisions are in keeping with the recommendations of the Internal Working Group constituted by the RBI in 2023 to review the PSL  guidelines. 

Key Changes:
Home Loans: In metropolitan centres (with population above 1 million), the eligible loan limit for PSL has been raised from ₹3.5 million to ₹5.0 million. In other centres, the cap has been revised from ₹2.5 million to ₹4.0 million.

However, the overall cost of the house should not exceed ₹6.5 million in metros and ₹5.0 million in other centres. These changes are intended to reflect the escalation in property prices over the years and make housing finance more accessible within the priority sector framework.

Urban Co-operative Banks: The new cap for housing loans has also been extended to Urban Co-operative Banks. Earlier, the loan cap for such lenders was ₹2.8 million and house cost ceiling was set at ₹3.5 million.

The overall PSL target for UCBs revised to 60% of adjusted net bank credit or credit equivalent of off-balance sheet exposures, whichever is higher. The revised norms also expand the list of eligible borrowers under the category of 'Weaker Sections,' along with the removal of the existing cap on loans by UCBs to individual women beneficiaries.

Renewable Energy: The cap for bank loans to individuals for installing solar panels, solar-based power generators, and other renewable energy solutions has been increased to ₹3.5 million from ₹1.0 million. This move is expected to spur investments by individuals and small enterprises in clean energy, particularly in rural and semi-urban areas.