RBI revises the priority sector lending norms

24 Apr 2015 Evaluate

The Reserve Bank of India (RBI) has revised the priority sector lending (PSL) norms. As per the RBI guidelines, now, loans to sectors such as social infrastructure, renewable energy and medium enterprises will also be treated as PSL. The new norms will give boost to the sectors like renewable energy and social infrastructure, as any bank that lends up to Rs 10 lakh to a household for solar power and biomass-based generators can classify the loan as priority sector.

An Internal Working Group (IWG) was set up in July 2014 to revisit the existing priority sector lending guidelines. The main features of the guidelines include dispensing the distinction between direct and indirect agriculture, target of 8 percent of ANBC or Credit Equivalent Amount of Off-Balance Sheet Exposure for Small and Marginal Farmers within agriculture, a target of 7.5 percent of ANBC or Credit Equivalent Amount of Off-Balance Sheet Exposure for Micro Enterprises

The new norms require banks to ensure that 8% of their loans go to small and marginal farmers. Earlier, there were sub-limits for direct lending and indirect lending to agriculture. These two segments have been merged making it easier for banks to achieve the 18% agri target as large loans to processed food industry are also now covered under agriculture

Foreign banks, which until recently enjoyed relaxed priority sector norms, will face new challenges. Under the new norms, Foreign Banks with 20 branches and above who already have priority sector targets and sub-targets for Agriculture and Weaker Sections, which are to be achieved by March 31, 2018 as per the action plans submitted. Foreign banks with less than 20 branches will move to the total priority sector target of 40% of loans or ‘Credit Equivalent Amount of Off-Balance Sheet Exposure’, whichever is higher, on a par with other banks by 2019-20. However, Export credit upto 32 percent of ANBC or Credit Equivalent Amount of Off-Balance Sheet Exposure, whichever is higher, will be eligible as part of priority sector for foreign banks with less than 20 branches.

Large-ticket education loans are also expected to receive a boost, under the new norms loans, up to Rs 10 lakh, including vocational courses, irrespective of the sanctioned amount, will be reckoned as part of priority sector lending. The central bank has also said that the priority sector non-achievement will be assessed on quarterly average basis at the end of the respective year from 2016-17 onwards, instead of annual basis as at present.

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