RBI relaxes priority sector lending norms

18 Oct 2012 Evaluate

In a response to the demand of the banker’s, the Reserve Bank of India (RBI), easing the norms for Priority Sector Lending (PSL) by banks, has expanded the ambit of distribution of loans to agriculture and weaker sections of the society. These additions and amendments will be operational with effect from July 20, 2012.

As per the eased norms, loans to corporates including farmers’ producer companies of individual farmers, partnership firms and co-operatives of farmers directly engaged in Agriculture and Allied Activities, up to an aggregate limit of Rs 2 crore will be treated as lending for direct agriculture under priority sector lending (PSL) status. In case the loan limit per borrower is more than Rs 2 crore, the same should be treated as indirect finance to agriculture.

Further, bank loans to Micro and Small Enterprises (MSE) engaged in providing or rendering of services will be eligible for classification as direct finance to MSE Sector under priority sector up to an aggregate loan limit of Rs 2 crore per borrower/unit.

Moreover, loans to governmental agency for construction of dwelling units or for slum clearance and rehabilitation of slum dwellers up to Rs 10 lakh per dwelling unit also would come under the ambit of priority sector lending. Furthermore, loans to economically weaker sections and low-income groups, loans to housing finance companies for refinance, on-lending for purchase or construction or reconstruction up to a ceiling of Rs 10 lakh per dwelling would also be eligible for priority sector lending.

In the earlier guidelines issued in July, the central bank had completely of loans granted to Housing Finance Companies (HFCs) from priority sector lending tag. The decision was criticized by the stakeholders, including Deepak Parekh, the chairman of India’s largest HFC - HDFC.

However, RBI after holding discussions with CMD/CEOs of select banks and officers in-charge of PSL and receiving feedback, decided to make certain additions and amendments for priority sector lending.

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