As part of its move to overhaul priority sector lending (PSL) guidelines, the Reserve Bank of India may make it easier for domestic banks to achieve agriculture lending targets.

Loans to medium enterprises, social infrastructure (schools, health care facilities, sanitation, etc) and renewable energy could also be brought under the PSL ambit.

However, the going may get tough for foreign banks (irrespective of the number of branches) as they could be brought on par with domestic banks for achieving targets within the priority sector lending, which includes loans to agriculture, micro and small enterprises, education, housing, and export credit.

The overall target of deploying 40 per cent of bank credit in priority sector and within that 18 per cent in agriculture has been retained.

Foreign banks, which currently have a target of deploying 32 per cent of their credit in priority sector, with 20 or more branches will be given time up to March 2018 to comply with the revised PSL guidelines. Other foreign banks, with less than 20 branches, may be given time up to March 2020.

The RBI’s internal working group to revisit the existing priority sector lending guidelines said the agriculture lending targets could be reset every three years depending on the function of three variables – contribution of agriculture to GDP, employment and number of credit accounts.

As against the extant target of deploying 13.5 per cent of bank credit in direct agriculture lending, the group has recommended a sub-target of eight per cent to small and marginal farmers.

This 8 per cent sub-target is to be achieved in a phased manner within a period of two years – 7 per cent by March 2016 and 8 per cent by March 2017.

The balance 10 per cent can be given to other farmers, agri-infrastructure and ancillary activities. Perceiving the huge need to create rural infrastructure and processing capabilities, the Group decided not to put any caps on the loan limits for lending for agri-infrastructure and agri-processing.

As per the current definition, direct agriculture entails loans given by banks to individual farmers, including Self Help Groups or Joint Liability Groups, engaged in agriculture and allied activities.

Banks, especially from the private sector, were finding it difficult to achieve the current direct agriculture lending target.

Small units

In addition to micro and small enterprises (MSEs), medium enterprises (MEs) will be included within the ambit of priority sector lending. While all MEs (manufacturing) may be included under PSL, MEs (service) with credit limit up to ₹10 crore may be eligible to qualify for PSL.

To ensure that the micro enterprises are not crowded out, a sub-target of 7.5 per cent for micro enterprises has been recommended, which is to be achieved in a phased manner.

To ensure that MSMEs do not remain small and medium units merely to be eligible for PSL status, the working group recommended that the PSL status may stay with them for up ti three years after they grow out of the MSME category.

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