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Micro credit to be treated as priority sector lending

Our Bureau

MUMBAI, Feb. 25

MICRO credit extended by banks will be treated as part of their priority sector lending.

In a circular issued to scheduled commercial banks recently, the Reserve Bank Of India has stated that micro credit extended by banks to individual borrowers, directly or through intermediaries, would be reckoned as a part of their priority sector lendin g.

The Reserve Bank guidelines intend to provide banks maximum flexibility with regard to micro lending. It has, therefore, not specified any interest rate or target level for the micro lending to be achieved.

The RBI has advised banks to formulate their own models or choose conduits/intermediaries to extend micro credit. It has also suggested that it may be useful for banks to start by selecting a small area and concentrate on the poor in it. It could then re plicate the arrangements in other selected areas with the experience gained.

While the interest rate applicable to loans extended to micro credit organisations or by the micro credit organisations to self-help groups/member beneficiaries has been left to the discretion of the banks, the RBI has stated that the interest rate ceili ng applicable to direct small loans given by banks to individual borrowers would remain in force, according to a press release.

A micro credit special cell has been set up in the RBI to suggest measures for augmenting flow of micro credit. A task force on supportive policy and regulatory framework for micro credit has also been set up by the National Bank for Agriculture and Rura l Development. Both the groups have since submitted their reports, the release said.