Priority lending: New norms from RBI for areas with low credit off take

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September 5, 2020 7:15 AM

Krishnan Sitaraman, senior director, Crisil Ratings, said the revision in PSL guidelines will incentivise credit flow to specific segments like clean energy, weaker sections, health infrastructure and credit deficient geographies.

The PSL guidelines issued by RBI were last reviewed for commercial banks in April 2015 and for urban cooperative banks (UCBs) in May 2018, the central bank said in a circular.The PSL guidelines issued by RBI were last reviewed for commercial banks in April 2015 and for urban cooperative banks (UCBs) in May 2018, the central bank said in a circular.

The Reserve Bank of India (RBI) on Friday released new norms for priority sector lending (PSL), increasing weights associated with districts having a relatively lower credit penetration.

Bank finance to start-ups (up to Rs 50 crore), loans to farmers for installation of solar power plants for solarisation of grid connected agriculture pumps and loans for setting up compressed bio gas (CBG) plants were included as fresh categories eligible for finance under PSL.

The PSL guidelines issued by RBI were last reviewed for commercial banks in April 2015 and for urban cooperative banks (UCBs) in May 2018, the central bank said in a circular. “With an objective to harmonise various instructions issued to commercial banks, SFBs (small finance banks), RRBs (regional rural banks), UCBs and LABs (local area banks); align these guidelines with emerging national priorities and bring sharper focus on inclusive development, it was decided to comprehensively review the PSL guidelines,” the circular said.

From FY22, a weight of 125% would be assigned to the incremental priority sector credit in the identified districts where the credit flow is comparatively lower and the per capita PSL is less than Rs 6,000. There are 184 such districts. A lower weight of 90% would be assigned for incremental priority sector credit in the 205 identified districts where the credit flow is comparatively higher and where the per capita PSL is greater than Rs 25,000.

Other districts will continue to have the existing weightage of 100%.

The circular mandates a staggered increase in PSL by UCBs over a four-year period. The current target of 40% shall stand increased to 75% of adjusted net bank credit (ANBC) or credit equivalent of off-balance sheet exposures (CEOBE), whichever is higher, with effect from March 31, 2024.

The target for lending to small and marginal farmers will rise to 10% in FY24 from 8% now for all categories of banks, except UCBs. The target for credit to weaker sections will rise to 12% in FY24 from 10% now for all banks, except RRBs, who will continue to have a 15% target for this category. “All domestic banks (other than UCBs) and foreign banks with more than 20 branches are directed to ensure that the overall lending to Non-Corporate Farmers (NCFs) does not fall below the system-wide average of the last three years’ achievement which will be separately notified every year,” the circular said. The applicable target for lending to the non-corporate farmers for FY21 will be 12.14% of ANBC or CEOBE, whichever is higher. Banks must also work towards the target of achieving 13.5% of ANBC going to NCFs.

Other changes made to PSL classification include a higher eligibility of loans to Farmer Producer Organisations (FPOs)/(FPC), with credit of up to Rs 5 crore to such entities now qualifying as PSL. Loans up to Rs 50 lakh against pledge/hypothecation of agricultural produce (including warehouse receipts) for a period of up to 12 months will qualify as PSL.

Bank loans up to a limit of Rs 30 crore to borrowers for purposes like solar-based power generators, biomass-based power generators, wind mills, micro-hydel plants and for non-conventional energy based public utilities, like street lighting systems and remote village electrification etc, will be eligible for PSL classification. The PSL classification limit for building health care facilities including under ‘Ayushman Bharat’ in Tier II to Tier VI centres will be Rs 10 crore per borrower. Loans up to `50 crore to start-ups, as per definition of the ministry of commerce and industry, will qualify under PSL. Bank credit to non-banking financial companies (NBFCs) and housing finance companies (HFCs) for on-lending will be allowed up to an overall limit of 5% of the individual bank’s total PSL.

Krishnan Sitaraman, senior director, Crisil Ratings, said the revision in PSL guidelines will incentivise credit flow to specific segments like clean energy, weaker sections, health infrastructure and credit deficient geographies.

“These measures are also aligned to focus areas of development as per extant policy environment and will support funding requirements in these specific sectors,” he said.

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