In a move that could potentially put Rs 66,000 crore into banks' priority sector classification, the Reserve Bank of India...
In a move that could potentially put Rs 66,000 crore into banks’ priority sector classification, the Reserve Bank of India has allowed the credit given under the overdraft facility to be classified as priority sector lending by banks.
“It has been decided that overdrafts extended by banks up to Rs 5,000 under Pradhan Mantri Jan-Dhan Yojana (PMJDY) accounts will be eligible for classification under priority sector advances (‘others’ category) as also weaker sections,” said RBI in a notification on Wednesday.
However, the classification would be allowed only if the borrowers’ household annual income does not exceed Rs 60,000 in rural areas and Rs 1,20,000 in non-rural areas.
Banks have already opened 13.2 crore accounts under the scheme that targets a bank account for every Indian. Back-of-the-envelope calculations show that this could translate into Rs 66,000 crore of credit included in priority sector. The banking system’s priority sector loans were an outstanding Rs 19.55 lakh crore.
Bankers said that this may potentially boosts their ability to easily meet the priority sector norms. “We have opened around 80 lakh accounts and assume every account has Rs 5,000 overdraft, we could have potentially Rs 4,000 crore under the priority sector,” said VR Iyer, Bank of India chairman and managing director. Bank of India’s priority sector advances were an outstanding Rs 92,497 crore as of December 31.
Under the RBI guidelines, banks are expected to lend 40% of adjusted net bank credit to priority sector, which includes agriculture and allied activities, small and micro enterprises and education and home loans up to a certain limit.
But some bankers said the move may not stack up big numbers as typically small loans taken towards consumption would be classified under the priority sector norms. “The overdraft is basically a credit for consumption purposes. Already such loans are classified as priority sector, so, this is not going to change the landscape,” said SKV Srinivasan, IDBI Bank executive director.
The PMJDY was launched by Prime Minister Narendra Modi in August 2014. The banks were told to open at least one account of an adult member in every household. Along with an account, other benefits like RuPay Debit Cards with Rs 1 lakh accidental insurance is to be provided. An overdraft of Rs 5,000 to a member of family, preferably a woman, will also be provided after observing satisfactory transactions in the account for six months.