Context: The Reserve Bank of India (RBI) released revised priority sector lending guidelines to augment funding to segments including start-ups and agriculture.
- Bank finance of up to 50 crores to start-ups, loans to farmers both for installation of solar power plants for solarization of grid-connected agriculture pumps and for setting up compressed biogas (CBG) plants have been included as fresh categories eligible for finance under the priority sector.
- Higher weightage has been assigned to incremental priority sector credit in ‘identified districts’ where priority sector credit flow is comparatively low.
- The targets prescribed for ‘small and marginal farmers and ‘weaker sections’ are being increased in a phased manner and a higher credit limit has been specified for farmer producer organisations (FPOs)/farmers producers companies (FPCs) undertaking farming with assured marketing of their produce at a pre-determined price.
- Besides, loan limits for renewable energy have been doubled.
March 2020: Priority sector classification for NBFCs
- The RBI has decided to extend priority sector classification for bank loans to NBFCs for on-lending for FY2020-21.
- Existing loans disbursed under the on-lending model will continue to be classified under priority sector till the date of repayment or maturity.
- Bank loans to NBFCs for on-lending would be eligible for classification as priority sector up to March 31, 2020.
- Credit to NBFCs and HFCs for on-lending will be allowed up to an overall 5% of the bank’s total priority sector lending.
- Earlier in August 2019, the central bank had decided to increase the cap on a bank’s exposure to a single NBFC to 20% of its tier-I capital from 15% now.
- Further, RBI gave ‘priority sector’ tag for banks lending to NBFCs, for on-lending to farm, small and medium enterprises and housing sector.
- Banks were allowed to lend to the NBFCs for on-lending to the agriculture sector up to ?10 lakh, up to ?20 lakh to micro and small enterprises, and for housing, up to ?20 lakh per borrower. These will be classified as priority sector lending.
What is Priority Sector Lending?
- Priority Sector includes the following categories:
(ii) Micro, Small and Medium Enterprises
(iii) Export Credit
(vi) Social Infrastructure
(vii) Renewable Energy
- The targets and sub-targets for banks under priority sector are as follows:
|Categories||Domestic scheduled commercial banks (excluding Regional Rural Banks and Small Finance Banks) and Foreign banks with 20 branches and above||Foreign banks with less than 20 branches|
|Total Priority Sector||40 per cent of Adjusted Net Bank Credit or Credit Equivalent Amount of Off-Balance Sheet Exposure, whichever is higher.||40 per cent of Adjusted Net Bank Credit or Credit Equivalent Amount of Off-Balance Sheet Exposure, whichever is higher, to be achieved in a phased manner by 2020.|
|Agriculture #||18 per cent of ANBC or Credit Equivalent Amount of Off-Balance Sheet Exposure, whichever is higher.|
Within the 18 per cent target for agriculture, a target of 8 per cent of ANBC or Credit Equivalent Amount of Off-Balance Sheet Exposure, whichever is higher is prescribed for Small and Marginal Farmers.
|Micro Enterprises||7.5 percent of ANBC or Credit Equivalent Amount of Off-Balance Sheet Exposure, whichever is higher.||Not applicable|
|Advances to Weaker Sections||10 percent of ANBC or Credit Equivalent Amount of Off-Balance Sheet Exposure, whichever is higher||Not applicable|
|# Domestic banks have been directed to ensure that their overall direct lending to non-corporate farmers does not fall below the system-wide average of the last three years achievement.|
- Priority sector loans to the following borrowers are eligible to be considered under Weaker Sections category:
|1.||Small and Marginal Farmers|
|2.||Artisans, village and cottage industries where individual credit limits do not exceed ? 0.1 million|
|3.||Beneficiaries under Government Sponsored Schemes such as National Rural Livelihoods Mission (NRLM), National Urban Livelihood Mission (NULM) and Self Employment Scheme for Rehabilitation of Manual Scavengers (SRMS)|
|4.||Scheduled Castes and Scheduled Tribes|
|5.||Beneficiaries of Differential Rate of Interest (DRI) scheme|
|6.||Self Help Groups|
|7.||Distressed farmers indebted to non-institutional lenders|
|8.||Distressed persons other than farmers, with loan amount not exceeding ? 0.1 million per borrower to prepay their debt to non-institutional lenders|
|9.||Individual women beneficiaries up to ? 0.1 million per borrower|
|10.||Persons with disabilities|
|11.||Overdraft limit to PMJDY account holder up to ? 10,000/- with age limit of 18-65 years.|
|12.||Minority communities as may be notified by Government of India from time to time|
- In States, where one of the minority communities notified is, in fact, in the majority, item (12) will cover only the other notified minorities.
- These States/ Union Territories are Jammu & Kashmir, Punjab, Meghalaya, Mizoram, Nagaland and Lakshadweep.
- The Reserve Bank of India opted to break with convention by reducing the key policy rate, the repo rate, by 35 basis points (bps) as it focused monetary policy measures on helping revive demand to tackle a deepening economic slowdown.
Note: This is a very dynamic topic and the various limits keep on changing. Students are advised to reconfirm data with the latest categories and limits. The above article has been prepared using the RBI website.