A Reserve Bank of India committee has recommended restoration of the priority sector tag to the loans give by banks to non-bank intermediaries for on-lending to identified segments such as agriculture, micro and small enterprises, micro credit and weaker sections, subject to a cap.
However, non-banking finance companies (NBFCs) in the gold loans business will be disappointed.
The Committee on Priority Sector Lending, headed by Mr M. V. Nair, Chairman and Managing Director, Union Bank of India, suggested that loans extended against gold jewelleries by NBFCs and other intermediaries should continue to be excluded from priority sector classification.
In a bid to get banks to take direct exposure to the priority sector, the RBI had withdrawn the priority sector tag to bank loans to non-bank intermediaries — NBFCs, housing finance companies (HFCs), primary agriculture credit societies (PACS) and co-operative banks — with effect from April 1, 2011.
Keeping in view the role of these non-bank financial intermediaries in extending financial services to the last mile, the Committee is of the view that bank loans sanctioned to such intermediaries for on-lending to specified segments should be reckoned for classification under priority sector.
Lending to non-bank intermediaries will, however, be subject to a cap of 5 per cent of Adjusted Net Bank Credit (ANBC), and to adherence to terms and conditions.
The specified segments qualifying as priority sector lending by non-banks include agricultural advances (vehicle for agricultural purposes and loans for tractor and farm equipment); micro and small enterprises (commercial vehicle loans and business loans to micro and small enterprises); micro-credit (loans to individuals and self-help groups); weaker sections (business loans to individuals); and housing loans.
“There is merit in allowing bank lending to non-bank financial intermediaries for promoting inclusive banking, subject to terms and conditions such as proper due diligence of end beneficiaries, capping of margins…This will also help sub-serve the financial inclusion goal of the Government and the RBI,” the committee report said.
If portfolio exceeds 5% norm
In the case of banks currently having a portfolio of on-lending, buyouts and securitisation in excess of the proposed 5 per cent of ANBC, the committee said such portfolio should be reduced by at least 1 per cent of ANBC every year for reckoning under priority sector, such that at the end of five years not more than 5 per cent of ANBC will be reckoned for such classification.
Any new on-lending, buyouts and securitisation by banks would not be reckoned for priority sector purpose until such time their portfolio of on-lending, buyouts and securitisation is reduced to 5 per cent of ANBC.