Context:

The Reserve Bank of India (RBI) brought startups under the purview of Priority Sector Lending (PSL), a move that will make it easier for startups to raise funds from banks.

Priority Sector Lending

• The RBI mandates banks to lend a certain portion of their funds to specified sectors– agriculture, micro, small and medium enterprises (MSMEs), export credit, education, housing, social infrastructure, renewable energy, and others.
• The idea behind this is to ensure that adequate institutional credit reaches some of the rather vulnerable sectors of the economy, which otherwise may not be attractive for banks from the profitability point of view.

Sectors under PSL

• Agriculture
• Micro, Small and Medium Enterprises (MSMEs)
• Export Credit
• Education
• Housing
• Social Infrastructure
• Renewable Energy
• Weaker Sections
• Others: Startup, SHG, etc.

Startups

• Startups are companies or ventures that are focused on a single product or service that the founders want to bring to market.
• These companies typically don’t have a fully developed business model and, more importantly, lack adequate capital to move on to the next phase of business.
• Most of these companies are initially funded by their founders.
• Startups were considered under the MSME category and were required to show three years of profitability.