A Study on the Impact of Priority Sector Lending on Financial Performance in Indian Banking Industry- A Comparative Study Between SBI and HDFC

Priority Sector Lending (PSL) is a vital component of the Indian banking industry, aimed at promoting economic growth and financial inclusion. This study examines the impact of PSL on the financial performance of two prominent Indian banks, State Bank of India (SBI) and Housing Development Finance Corporation (HDFC), over a period of five years (2017-2022). Using a comparative analysis approach, this research investigates the relationship between PSL and key financial indicators such as return on assets (ROA), return on equity (ROE), net interest margin (NIM), and credit deposit ratio. The findings reveal that while both banks have complied with the regulatory requirements of PSL, SBI’s financial performance has been more significantly influenced by its PSL portfolio. The study also highlights the differences in PSL strategies employed by the two banks, with SBI focusing on agricultural and microfinance lending, whereas HDFC has concentrated on housing finance and small-scale industries. The results have important implications for policymakers, bankers, and stakeholders, underscoring the need for targeted interventions to enhance the efficacy of PSL and promote sustainable financial inclusion.