Priority Sector Lending – Bank Loan
Priority Sector Lending
The Reserve Bank of India has issued a number of guidelines on priority sector lending to banks for boosting the amount of loan sanctioned to certain categories of borrowers. As per the Priority Sector Lending guidelines issued in 2016, Bank are required to maintain Priority Sector Lending at 40% of Adjusted Net Bank Credit or Credit Equivalent Amount of Off-Balance Sheet Exposure, whichever is higher. In this article, we look at the concept of priority sector lending and the targets set by Reserve Bank of India in detail.
Priority Sector Lending Target
Scheduled commercial banks and foreign banks in India with more than 20 branches are required to comply with priority sector lending targets set by the Reserve Bank of India. Loan provided for agriculture, MSME businesses, export credit, education, housing, social infrastructure, renewable energy and others fall under priority sector lending in India. Of the total adjusted net bank credit (ANBC), 40% of the bank credit must be made towards priority sector. Further, banks are also required to ensure that agriculture loans makeup for upto 18% of ANBC or Credit Equivalent Amount of Off-Balance Sheet Exposure, whichever is higher. MSME loan must make up 7.5% of ANBC and loans to weaker sections must make up 10% of ANBC or Credit Equivalent Amount of Off-Balance Sheet Exposure, whichever is higher.
RBI monitors priority sector lending on a quarterly basis. Banks that do not meet priority sector lending target may be required to allocate amounts for contribution to the Rural Infrastructure Development Fund (RIDF) established with NABARD and other Funds with NABARD/NHB/SIDBI/ MUDRA Ltd. , as decided by the Reserve Bank
Loan for Agriculture
Loans to the agriculture sector including farm credit (which will include short-term crop loans and medium/long-term credit to farmers), agriculture infrastructure and ancillary agricultural activities are classified under priority sector lending with specific targets.
Loans to MSME businesses as per MSMED Classification are classified under priority sector lending. 7.5% of ANBC or Credit Equivalent Amount of Off-Balance Sheet Exposure must be for MSME businesses.
Export credit including pre-shipment and post shipment export credit would fall under priority sector lending. Incremental export credit over previous year, subject to a sanctioned limit of up to ₹25 crore per borrower to units having turnover of up to ₹100 crore is classified under priority sector lending.
Loans to individuals for educational purposes including vocational courses upto ₹10 lakh irrespective of the sanctioned amount is considered as priority sector lending.
Housing loans to individuals of upto Rs.28 lakh in metropolitan centres (with population of ten lakh and above) and loans up to ₹20 lakh in other centres for purchase/construction of a house per family falls under priority sector lending.
Bank loans up to a limit of ₹5 crore per borrower for building social infrastructure like schools, health care facilities, drinking water facilities and sanitation facilities including construction/ refurbishment of household toilets fall under priority sector lending. In addition, bank credit to Micro Finance Institutions (MFIs) extended for on-lending to individuals and also to members of self-help groups for water and sanitation facilities will be eligible for categorisation as priority sector lending.
Bank loans of upto Rs.15 crore to borrowers for purposes like solar based power generators, biomass based power generators, wind mills, micro-hydel plants and for non-conventional energy based public utilities viz. street lighting systems, and remote village electrification are classified as priority sector lending. For individual households, the loan limit will be ₹10 lakh per borrower.
Loans to the following category of persons will be considered priority sector lending:
- Small and Marginal Farmers
- Artisans, village and cottage industries where individual credit limits do not exceed ₹1 lakh
- Beneficiaries under Government Sponsored Schemes such as National Rural Livelihood Mission (NRLM), National Urban Livelihood Mission (NULM) and Self Employment Scheme for Rehabilitation of Manual Scavengers (SRMS)
- Scheduled Castes and Scheduled Tribes
- Beneficiaries of Differential Rate of Interest (DRI) scheme
- Self Help Groups
- Distressed farmers indebted to non-institutional lenders
- Distressed persons other than farmers, with loan amount not exceeding ₹1 lakh per borrower to prepay their debt to non-institutional lenders
- Individual women beneficiaries up to ₹1 lakh per borrower
- Persons with disabilities
- Overdrafts upto ₹5,000/- under Pradhan Mantri Jan-DhanYojana (PMJDY) accounts, provided the borrower’s household annual income does not exceed ₹100,000/- for rural areas and ₹1,60,000/- for non-rural areas
- Minority communities as may be notified by Government of India from time to time.
Other Priority Sector Lending Categories
In addition to the above, the following category of loans also fall under priority sector lending:
- Loans not exceeding ₹50,000/- per borrower provided directly by banks to individuals and their SHG/JLG, provided the individual borrower’s household annual income in rural areas does not exceed ₹1,00,000/- and for non-rural areas it does not exceed ₹1,60,000/-.
- Loans to distressed persons [other than farmers included under paragraph 6(6.1)(A)(v)] not exceeding ₹1,00,000/- per borrower to prepay their debt to non-institutional lenders.
- Loans sanctioned to State Sponsored Organisations for Scheduled Castes/ Scheduled Tribes for the specific purpose of purchase and supply of inputs and/or the marketing of the outputs of the beneficiaries of these organisations.