Priority sector lending

The Indian requirement that banks direct a specified share of their lending to designated sectors including agriculture, small enterprises and weaker sections.

Banks that fall short buy priority-sector lending certificates or acquire qualifying pools from other lenders, which is one of the main reasons the direct assignment market exists.

An analyst can measure the consequence in two places. Yield on advances is dragged down where the mandated segments price below the book average, and credit cost is raised where those segments default more, so the risk-adjusted spread on the obligated portion is structurally thinner. Some banks meet the requirement through their own origination and never need to buy certificates or pools from other lenders. They generally do so because they built distribution in those segments and can underwrite them. That's a real capability. Don't mistake it for a compliance cost.

Targets and definitions are set by regulation and they change, so check the current figures before you use them.