RBI panel bats for priority sector lending at 40% of net credit

RBI panel bats for priority sector lending at 40% of net credit

The Reserve Bank of India (RBI), on Tuesday, said the  target of domestic scheduled commercial banks for lending to priority sector may be retained at 40 per cent of adjusted net bank credit (ANBC) or credit equivalent of off-balance sheet exposure (CEOBE), whichever is higher.

RBI also said bank loans to non-bank financial intermediaries for on-lending to specified segments may be allowed to be reckoned for classification under priority sector, up to a maximum of 5 per cent of ANBC or CEOBE, whichever is higher, subject to certain due diligence and documentation standards.

The committee recommends allowing non-tradable priority sector lending certificates (PSLCs) on pilot basis with domestic scheduled commercial banks, foreign banks and regional rural banks as market players.  It seeks to have significant impact in addressing issue of directing lending to those who have lack of access to credit and to those sectors which generate large employment.

Aforementioned are some of the major recommendations made in the report of the 10-member RBI Committee headed by M V Nair (Chairman of Union Bank of India) constituted to re-examine the existing classification and suggest revised guidelines with regard to priority sector lending and related issues.

Unveiling the report on its website, RBI has sought feedback on the Nair Committee report from banks, non-bank financial institutions, other institutions and members of public by March 31, 2012.  Final circular on priority sector lending will be issued by RBI after receiving feedback on the report.

Some of the other major recommendations envisaged by the Nair Committee suggest that all loans to women under priority sector may also be counted under loans to weaker sections.

Limit under priority sector for loans for studies in India may be increased to Rs. 15 lakh and Rs. 25 lakh in case of studies abroad, from existing limit of Rs 10 lakh and Rs 20 lakh, respectively, the report said.

The loans to housing and education may continue to be under priority sector. Loans for construction or purchase of one dwelling unit per individual up to Rs 25 lakh; loans up to Rs.2 lakh in rural and semi urban areas and up to Rs.5 lakh in other centres for repair of damaged dwelling units may be granted under priority sector.

In order to encourage construction of dwelling units for Economically Weaker Sections (EWS) and Low Income Groups (LIG), housing loans granted to these individuals may be included in Weaker Sections Category.

The MSE sector may continue to be under priority sector. Within MSE sector, a sub target for micro enterprises is recommended equivalent to 7 per cent of ANBC or CEOBE to be achieved in stages by 2013-14, it noted. Banks may be encouraged to ensure that the number of outstanding beneficiary accounts under ‘small and marginal farmers’ and micro enterprises’ each register a minimum annual growth rate of 15 per cent.  The sector ‘agriculture and allied activities’ may be a composite sector within priority sector, by doing away with distinction between direct and indirect agriculture.

The targets for agriculture and allied activities may be 18 per cent of ANBC or CEOBE, whichever is higher. A sub target for small and marginal farmers within agriculture and allied activities is recommended, equivalent to 9 per cent of ANBC or CEOBE, whichever is higher to be achieved in stages by 2015-16.

By adopting a wide and exhaustive consultation process, the Committee identified key issues facing diverse segments and sections of society; examined them thoroughly and made recommendations that would support achieving the objectives of directed lending.