The PSL Full Form in Banking is Priority Sector Lending.
In circumstances where participants in a particular economic sector would suffer severe losses in the absence of PSL, the RBI may opt to allocate funds to that sector as a priority. Top Industries The Reserve Bank of India (RBI) is responsible for encouraging banks to lend money to various sectors of the economy, such as agriculture and its related industries, education, and the provision of shelter and sustenance for the underprivileged.
In contrast to sponsoring only lucrative industries or areas that are simply crucial to economic growth, the purpose of a PSL project is to extend credit to the economically disadvantaged. Each priority industry can quickly and easily apply for the loans that banking institutions are mandated to make available at preferential interest rates.
With an eye toward 2020, the RBI wanted to find ways to get money to the startup industry.
Initially, only public-sector lenders were obligated to prioritise the growth of the designated priority sectors; but, as the policy has expanded, private and international banks are also now obligated to do so. PSLCs function similarly to money market certificates in that they allow banks to raise capital through trading. In this way, institutions with excess capital may be incentivized, and those with a cash shortage may be able to meet their immediate funding needs.