Priority Sector Lending (PSL) serves as a vital institutional mechanism designed to channel credit into historically underserved segments of the economy, including agriculture, micro-enterprises, and education. By ensuring targeted financial access, PSL fosters inclusive financial growth, reduces regional disparities, and empowers marginalized communities. Ultimately, this structured deployment of bank credit acts as a powerful catalyst for grassroots socio-economic development, driving poverty alleviation and sustainable infrastructure development. This exploratory and analytical case study examines the impact of Priority Sector Lending (PSL) on the socio-economic development of Shimoga City, Karnataka, focusing on SBI, Canara Bank, and Bank of Baroda. Utilizing a mixed-methodology approach with a sample of 100 respondents, the research evaluates the effectiveness of targeted credit, segment-wise Non-Performing Assets (NPAs), and regional development goals. The findings aim to provide insights into banking credit efficacy, asset quality, and institutional lending’s role in inclusive growth.