Scope of priority sector lending extended

Updated - October 18, 2016 02:26 pm IST

Published - October 17, 2012 11:39 pm IST - MUMBAI:

The Reserve Bank of India, on Wednesday, eased norms for priority sector lending by banks and also expanded the scope for distributing loans to agriculture and weaker sections of the society.

“The additions and amendments will be operational with effect from July 20,” the RBI said in a notification.

The central bank allowed banks to include loans to corporates, including farmers' producer companies of individual farmers, partnership firms and co-operatives of farmers directly engaged in agriculture and allied activities — dairy, fishery, animal husbandry, poultry, bee-keeping and sericulture (up to cocoon stage) — up to an aggregate limit of Rs.2 crore per borrower, to be considered as apriority sector lending.

Further short-term loans for raising crops, which include traditional/non-traditional plantations, horticulture and allied activities, would be included in the priority sector.

Loans for pre-harvest and post-harvest activities, spraying, weeding, harvesting, grading and sorting will be included in the priority sector. Now priority sector lending would also include export credit for exporting own farm produce.

During the interaction the RBI Governor had with bankers on July 31, 2012 in connection with the first quarter review of Monetary Policy 2012-13, certain concerns were raised by the banks on the revised priority sector guidelines.

“Discussions were held with CMD/CEOs of select banks and also with priority sector heads of select banks. Based on the feedback received, it has been decided to make certain additions and amendments, in the guidelines on priority sector issued on July 20,” the RBI added.

Bank loans to Micro and Small Enterprises (MSEs) engaged in providing or rendering of services will be eligible for classification as direct finance to the MSE sector under the priority sector up to an aggregate loan limit of Rs.2 crore per borrower/unit, provided they satisfy the investment criteria for equipment as defined under the MSMED Act, 2006.

In the housing sector, bank loans to any governmental agency for construction of dwelling units or for slum clearance and rehabilitation of slum dwellers subject to a ceiling of Rs.10 lakh per dwelling unit would be considered as priority sector lending.

“For the purpose of identifying the economically weaker sections and low income groups, the family income limit of Rs.1.120 lakh per annum, irrespective of location, is prescribed,” it added.

Bank loans to housing finance companies (HFCs) — approved by the NHB for their refinance — for on-lending for the purpose of purchase, construction and reconstruction of individual dwelling units or for slum clearance and rehabilitation of slum dwellers, subject to an aggregate loan limit of Rs.10 lakh per borrower, would come under priority sector lending.

However, the RBI stipulated that all inclusive interest rate charged to the ultimate borrower would not exceed the lowest lending rate of the lending bank for housing loans plus 2 per cent per annum. The eligibility under priority sector loans to HFCs is restricted to 5 per cent of the individual bank’s total priority sector lending, on an ongoing basis.

The RBI also asked banks to ensure that loans extended under the priority sector are for approved purposes and the end use is continuously monitored. “The banks should put in place proper internal controls and systems in this regard,” it added.

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