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Posted: 11 Jul 2020 04:08 AM PDT
A large portion of the population in India doesn't have access to funds. Therefore RBI has adopted Priority Sector Lending norms which relaxes the lending norms for poor and small businesses.
Priority Sector includes the following categories:
- Agriculture
- Micro, Small and Medium Enterprises
- Export Credit
- Education
- Housing
- Social Infrastructure
- Renewable Energy
- Others
| Categories | Domestic scheduled commercial banks and Foreign banks with
more than 20 branches in India |
|---|
| Total Priority Sector | 40 per cent of Adjusted Net Bank Credit or Credit
Equivalent Amount of Off-Balance Sheet Exposure, whichever is higher. |
| Agriculture | 18 per cent of ANBC or Credit Equivalent Amount of
Off-Balance Sheet Exposure, whichever is higher.
Within the 18 percent target for agriculture, a target of 8
percent 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. |
| Advances to Weaker Sections | 10 percent of ANBC or Credit Equivalent Amount of
Off-Balance Sheet Exposure, whichever is higher |
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, to be achieved in a phased manner by 2020. |
Update: Target for Regional Rural Bank and Small Finance Banks
| Categories | Target |
| Total Priority Sector | 75 per cent of Adjusted Net Bank Credit |
| Agriculture | 18 per cent of ANBC. Within the 18 per cent target for agriculture, a target of 8 percent of ANBC is prescribed for Small and Marginal Farmers. |
| Micro Enterprises | 7.5 per cent of ANBC |
| Advances to Weaker Sections | 10 percent of ANBC |
Limits on priority sector lending
| Sector | Limit for Priority sector lending |
|---|
| Social infrastructure | Rs.50 million |
| Education | Rs. 1 million |
| Renewable energy | Rs.150 million |
| Exports | Rs.400 million |
| Housing loans |
Metropolitan: Rs.3.5 million (Maximum house value Rs.4.5 million)
Other cities: Rs.2.5 million (Maximum house value Rs.3 million) |
Weaker section categories
- Small and Marginal Farmers
- Artisans, village and cottage industries where individual credit limits do not exceed Rs. 0.1 million
- 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)
- Scheduled Castes and Scheduled Tribes
- Beneficiaries of Differential Rate of Interest (DRI) scheme
- Self Help Groups
- Distressed farmers indebted to non-institutional lenders
- Distressed persons other than farmers, with loan amount not exceeding Rs. 0.1 million per borrower to prepay their debt to non-institutional lenders
- Individual women beneficiaries up to Rs. 0.1 million per borrower
- Persons with disabilities
- Overdraft limit to PMJDY account holder upto Rs.10,000/- with age limit of 18-65 years.
- Minority communities as may be notified by Government of India from time to time
Updation of RBI Circulars related to Priority Sector Lending
UCB’s PSL target shortfall
- With effect from March 31, 2021, all UCBs (excluding those under all-inclusive directions) will be required to contribute to Rural Infrastructure Development Fund (RIDF) established with NABARD and other Funds with NABARD / NHB / SIDBI / MUDRA Ltd., against their priority sector lending (PSL) shortfall.
Lending by banks to NBFCs for On-Lending (March 23, 2020)
- It has been decided to extend the priority sector classification for bank loans to NBFCs for on-lending for FY 2020-21. Further, existing loans disbursed under the on-lending model will continue to be classified under Priority Sector till the date of repayment/maturity.
- Bank credit to registered NBFCs (other than MFIs) and HFCs for on-lending will be allowed up to an overall limit of five percent of individual bank’s total priority sector lending.
Target for priority sector lending – UCBs
- The overall priority sector lending (PSL) target for UCBs stood at 40% of the adjusted net bank credit (ANBC) or credit equivalent amount of off-balance sheet exposure (CEOBSE), whichever is higher. On a review, it has been decided that the overall PSL target for UCBs shall stand increased to 75 per cent of ANBC or CEOBSE, whichever is higher.
- UCBs shall comply with the above target by March 31, 2024 as per the following milestones:
| PSL targets to be achieved by |
| March 31, 2020 | March 31, 2022 | March 31, 2023 | March 31, 2024 |
| 45% of ANBC or CEOBSE, whichever is higher | 50% of ANBC or CEOBSE, whichever is higher | 60% of ANBC or CEOBSE, whichever is higher | 75% of ANBC or CEOBSE, whichever is higher |
Classification of Exports under priority Sector
- Enhance the sanctioned limit, for classification of export credit under PSL, from Rs.250 million per borrower to Rs.400 million per borrower.
- Remove the existing criteria of ‘units having turnover of up to Rs.1 billion’.
Lending by banks to NBFCs for On-Lending
- In order to boost credit to the needy segment of borrowers, it has been decided that bank credit to registered NBFCs (other than MFIs) for on-lending will be eligible for classification as priority sector under respective categories subject to the following conditions:
- Agriculture: On-lending by NBFCs for ‘Term lending’ component under Agriculture will be allowed up to Rs 10 lakh per borrower.
- Micro & Small enterprises: On-lending by NBFC will be allowed up to Rs 20 lakh per borrower.
- Housing: Enhancement of the existing limits for on-lending by HFCs vide para 10.5 of our Master Direction on Priority Sector lending, from Rs 10 lakh per borrower to Rs 20 lakh per borrower.
Priority Sector Lending – Small Finance Banks and RRBs – Target
| Categories | Target |
| Total Priority Sector | 75 per cent of Adjusted Net Bank Credit |
| Agriculture | 18 per cent of ANBC. Within the 18 per cent target for agriculture, a target of 8 percent of ANBC is prescribed for Small and Marginal Farmers. |
| Micro Enterprises | 7.5 per cent of ANBC |
| Advances to Weaker Sections | 10 percent of ANBC |
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