RBI amends priority sector lending norms

The Reserve Bank of India (RBI) has expanded the priority sector lending in agriculture, housing and small and medium enterprises to widen the scope loans to these sectors.

“...discussions were held with CMD/CEOs of select banks and also with priority sector heads of select banks. Based on the feedback received, it has been decided to make certain additions and amendments in the guidelines on priority sector,” the RBI said in a notification today.

The RBI said lending by banks to corporates, including farmers’ producer companies of individual farmers, partnership firms and co-operatives of farmers in agriculture and allied activities — dairy, fishery, animal husbandry, poultry, bee-keeping, and sericulture — up to an aggregate limit of Rs 2 crore would qualify for priority sector lending.

This kind of lending could be for the purpose of raising crops, pre-harvest and post-harvest activities (spraying, weeding, harvesting, grading, sorting) and export credit for exporting their own farm produce, it said.

In case the loan limit per borrower is more than Rs 2 crore, the entire loan should be treated as indirect finance to agriculture, it added.

Also, bank loans to (MSE) engaged in providing or rendering of services would be eligible for direct finance under priority sector up to an aggregate limit of Rs 2 crore per borrower/unit.

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 would come under priority sector.

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.

The RBI further clarified “banks should ensure that loans extended under priority sector are for approved purposes and the end use is continuously monitored. The banks should put in place proper internal controls and systems in this regard.”

The central bank has mandated targets for priority sector lending to meet the credit needs of large sections of population who had no access to institutional finance.