Revised norms may raise the bar for priority sector lending

By: | Updated: March 3, 2015 5:14 AM

Working group suggests inclusion of renewable energy, sanitation, health care

Priority sector lending norms may soon be revised and loans to renewable energy, sanitation, health care and other rural infrastructure included in the segment.

An internal working group of the Reserve Bank of India (RBI), formed to review PSL norms, has recommended addition of new sectors and also sub-targets. It also recommended issuance of priority sector lending certificates (PSLC) to enable banks to meet their PSL norms.

Under this, banks that have lent over the mandated PSL norm can issue a PSLC to be purchased by those falling short, over an electronic platform. Banks cannot issue PSLC of more than 50% of their preiovus year’s PSL achievement, the working group report said.

Currently, banks are mandated to disburse 40% of their adjusted net bank credit (ANBC) to priority sector, which includes agriculture and allied activities, small and micro enterprises and also education and home loans up to a certain limit.

Priority sector, renewable energy, sanitation, health care, Reserve Bank of India, PSL norms

Within the 40% target, banks have to lend 18% to agriculture. The group submitted its report on Monday in which it recommended a sub-target of 8% to small and marginal farmers within the 18% targeted lending to agriculture. This sub-target can be achieved in a phased manner over two years, the report said.

“More flexibility has been recommended for banks to lend the remaining 10% of the overall agriculture loan target to other farmers, agricultural infrastructure and ancillary activities as defined by the group. To give a fillip to agri-infrastructure and agri-processing, no caps on loan limits have been stipulated,” the report said.

The remaining 10% may be given to other farmers, agri-infrastructure and ancillary activities. The group also recommended that the agriculture lending target of 18% be reset every three years, keeping in mind the contribution of farm sector to the gross domestic product, employment in the sector and number of credit accounts.

In addition, banks would also have to disburse 7.5% of their ANBC to micro enterprises, the report said. In the Union Budget, finance minister Arun Jaitley had announced setting up of a Mudra Bank that would refinance loans to micro enterprises.

The group also proposed carving out a separate sub-target of 2% for export finance under PSL. Further, the group has recommended that loans up to Rs 10 crore given towards setting up of social infrastructure, such as building of schools, healthcare facilities, drinking water facilities, etc, in Tier-II to Tier-VI centres with population less than 1 lakh, can be included in priority sector lending.

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