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October 22, 2016

Banking Awareness 2016 in Simple Language - Lesson 12

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Dear Gr8 Ambitionists, in our yesterday's Banking Awareness 2016 Lesson 11, we have learnt about Types of Loans in India. In today's lesson, we shall learn about the Priority Sector Lending . Happy Reading :) 

Banking Awareness 2016 : Priority Sector Lending

Priority Sector Lending
  • Priority Sector refers to those sectors of the economy which may not get timely and adequate credit in the absence of this special dispensation. Priority sector was first properly defined in 1972, after the National Credit Council emphasized that there should be a larger involvement of the commercial banks in the priority sector.
  • The sector was then defined by Dr. K S Krishnaswamy Committee.

What is Priority Sector Lending ?

Priority Sector Lending is an important role given by the Reserve Bank of India (RBI) to the banks for providing a specified portion of the bank lending to few specific sectors like agriculture, micro and small enterprises, poor people for housing, students for education and other low income groups and weaker sections.

Historical Background (Important Years) :
  • 1972 : Priority Sector (PS) concept was evolved
  • 1974 : 1st Target : 1/3rd of Total advances
  • 1980 : Target revised : 40% of aggregate credit
  • 2012 : M. V. Nair Committee working upto 232/4/15
  • 2015 : Internal working group of RBI working from 23/04/15

(A) Targets /Sub-targets for Priority sector



Categories
Domestic Commercial Banks & Foreign Banks with 20 and above branches [Excluding RRBs]
Total Priority Sector
40 percent of Adjusted Net Bank Credit or Credit Equivalent Amount of Off-Balance Sheet Exposure, whichever is higher.
Agriculture
18% of ANBC or Credit Equivalent Amount of Off-Balance Sheet Exposure, whichever is higher.
Small and Marginal Farmers
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, to be achieved in a
phased manner i.e., 7%  by March 2016 and 8 per cent by March 2017.
Micro Enterprises
7.5 percent of ANBC or Credit Equivalent Amount of Off-Balance Sheet Exposure, whichever is higher to be achieved in a phased manner i.e. 7 per cent by March 2016 and 7.5 per cent by March 2017.
Advances to Weaker Sections
15% of ANBC or Credit Equivalent Amount of Off-Balance Sheet Exposure, whichever is higher.
 

(B) Target for foreign banks with less than 20 branches

40% of ANBC or credit equivalent amount of off-balance sheet exposure, whichever is higher in a phased manner by 2020 as under :
  • 2015-16 = 32
  • 2016-17 = 34
  • 2017-18 = 36
  • 2018-19 = 38
  • 2019-20 = 40

(C) Targets for Priority Sector for RRB urban co-operative Banks 

75% of overall priority sector for RRBs (of total advances)

Categories under priority sector

  • Agriculture
    • Farm credit
    • Agriculture Infrastructure
    • Ancillary Actvities
  • Micro, Small and Medium Enterprises
  • Export Credit
  • Education
  • Housing
  • Social Infrastructure
  • Renewable Energy
  • Weaker Sections
  • Others  
Agriculture :
  1. Farm Credit 
    • Loans for crop loan to farmer.
    • Loans upto 50 lacs against crop for 12 months.
    • Loans to farmer under KCC.
    • Loans for land to marginal & small farmers. 
    • Loans to corporate [for agri & allied activities] upto 2 crores including : Crop loans, medium & long term loans, loans for pre and post harvest activities, loans upto 50 lacs against crop for a period of 12 months.
  2. Agriculture Infrastructure 
    • An aggregate sanctioned limit of Rs. 100 crore borrower from banking system for 
      • Construction of storage facilities
      • Soil conservation and watershed development
      • Plant tissue culture and agri bio technology, bio fertilizer etc
  3. Ancillary activities
    • Loans upto 5 crores to co-operative societies of farmers. 
    • Loans for setting up clinic, Agri business centres. 
    • Loans for food and processing upto 100 crore.
    • Loans to MFI's (Micro Finance Institutions) for lending to Agriculture. 
MSME
  • Entire financing to manufacturing sector is eligible. 
  • Financing upto 5 crore per unit MSE and upto 10 crore per unit to medium units to service sector. [we shall learn about this in details in coming lessons]
Export Credit
  • Incremental export credit upto 2% of ANBC or CEOBE maximum 25 crore per borrower to units having turnover upto 100 crores for Domestic Banks. 
  • Incremental export credit upto 2% of ANBC or CEOBE w.e.f. 1st April 2017 for foreign banks with 20 and above branches. 
  • 32% of ANBC or CEOBE for foreign banks with less than 20 branches. 
Education 
  • Loans to individual for educational purposes upto 10 lacs.
Housing Loan
  • To individuals upto 28 lacs in metro centres [with population 10 lac & above] provided overall cost of dwelling unit should not exceed Rs. 35 lacs.
  • Loans to individual upto Rs. 20 lacs in other area, overall cost of dwelling unit should not exceed Rs. 25 lacs.
Social Infrastructure 
  • Banks loans upto 5 crore per borrower for social infrastructure. 

Renewable Energy 
  • Bank loans upto 15 crore for purpose like solar based power plant, windmills, street lighting system. 
  • For individual loan upto 10 lacs per borrower. 
Weaker Sections 
  • Small & Marginal farmers. 
  • Individual women beneficiaries upto 1 lacs per borrower. 
  • Schedule castes and scheduled tribes. 
  • Overdraft upto 5000 in PMJDV a/c. 
  • Self Help Group (SHG)
  • Distressed persons other than farmers upto 1 lacs.
  • Person with disability.
Note : As per guidelines of RBI from 1st January 2016 Priority Sector Lending will be monitored quarterly as well as annually.

Common guidelines for priority sector loans

Banks should comply with the following common guidelines for all categories of advances under the priority sector.
  • Rate of interest
    • The rates of interest on bank loans will be as per directives issued by our Department of Banking Regulation from time to time.
  • Service charges
    • No loan related and adhoc service charges/inspection charges should be levied on priority sector loans up to ₹ 25,000.
  • Receipt, Sanction/Rejection/Disbursement Register
    • A register/ electronic record should be maintained by the bank, wherein the date of receipt, sanction/rejection/disbursement with reasons thereof, etc., should be recorded. The register/electronic record should be made available to all inspecting agencies.
  • Issue of Acknowledgement of Loan Applications
    • Banks should provide acknowledgement for loan applications received under priority sector loans.
    • Bank Boards should prescribe a time limit within which the bank communicates its decision in writing to the applicants.
That's all for now friends. In our next lesson, we shall learn about Charging of Securities and NPA (Non-Performing Assets). Happy Reading :)
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