Priority Sector Lending
by Waman Gokhale, Former Deputy General Manager, Central Bank of India.
(Reserve Bank of India has mandated all banks to give certain portions of their total loans and advances to the Priority Sector. There are different mandates for different types of banks, viz:
- Domestic Commercial Banks & Foreign Banks with 20 branches and Above
- Foreign Bank with less than 20 branches
- Regional Rural Bank
- Small Finance Bank
In this article, we shall be limiting our discussion on Priority Sector targets applicable for the first type, i.e., Domestic Commercial Banks & Foreign Banks with 20 branches and Above)
Category of Loans covered under priority sector
- Micro, Small & Medium Enterprises
- Export Credit
- Social Infrastructure
- Renewal Energy
- Weaker section
Targets /Sub Targets for Priority sector
* Revised targets for Agriculture and SMFs will be implemented in phased manner
*ANBC : Adjusted Net Bank Credit
*CEOBE : Credit Equivalent of Off Balance Sheet Exposure
Small and Marginal Farmers
For the purpose of computation of achievement of the sub-target, Small and Marginal farmers are defined as:-
- Farmers with land holding of up to 1 hectare (Marginal Farmers).
- Farmers with a landholding of more than 1 hectare and up to 2 hectares (Small Farmers).
- Landless agricultural labourers, tenant farmers, oral lessees and sharecroppers whose share of landholding is within the limits prescribed for SMFs.
- Loans to Self Help Groups (SHGs) or Joint Liability Groups (JLGs), i.e. groups of individual SMFs directly engaged in Agriculture and Allied Activities, provided banks maintain disaggregated data of such loans.
- Loans up to ₹2 lakh to individuals solely engaged in Allied activities without any accompanying land holding criteria.
Loans to individuals for educational purposes, including vocational courses, not exceeding ₹ 20 lakh will be considered as eligible for priority sector classification. Loans currently classified as priority sector will continue till maturity.
- Up to Rs 35 lakh in metropolitan centres (with population of ten lakh and above) and up to Rs 25 lakh in other centres per family provided the overall cost of the dwelling unit in the metropolitan centre and at other centres does not exceed Rs 45 lakh and Rs 30 lakh respectively
- Housing loans to banks’ own employees will not be eligible for classification under the priority sector.
- Loans up to Rs 10 lakh in metropolitan centres and up to Rs 6 lakh in other centres for repairs -subject to the overall cost of the dwelling unit.
- Loans to governmental agency for construction of dwelling units - subject to dwelling units with carpet area of not more than 60 sq.m.
- Loans for affordable housing projects using at least 50% of FAR/FSI for dwelling units with carpet area of not more than 60 sq.m.
- Loans to Housing Finance Companies for on-lending, up to Rs 20 lakh for individual borrowers,
- Outstanding deposits with National Housing Bank on account of priority sector shortfall.
- Loans up to Rs 5 crore for setting up schools, drinking water facilities and sanitation facilities including construction/ refurbishment of household toilets and water improvements at household level.
- Loans up to Rs 10 crore for building health care facilities including under ‘Ayushman Bharat’ in Tier II to Tier VI centres.
- Loans to MFIs extended for on-lending to individuals and also to members of SHGs/JLGs for water and sanitation facilities
Loans up to a limit of Rs 30 crore to borrowers for purposes like solar based power generators, biomass-based power generators, wind mills, micro-hydel plants and for non-conventional energy based public utilities viz., street lighting systems and remote village electrification etc., will be eligible for Priority Sector classification.
For individual households, the loan limit will be Rs 10 lakh per Borrower
- Loans upto Rs 1.00 lakh per borrower – provided borrower’s household annual income in rural areas does not exceed Rs 1.00 lakh and for non-rural areas it does not exceed Rs 1.60 lakh
- Loans not exceeding Rs 2.00 lakh provided directly by banks to SHG/JLG for activities other than agriculture or MSME, viz., loans for meeting social needs, construction or repair of house, construction of toilets or any viable common activity started by the SHGs.
- Loans to distressed persons - not exceeding Rs 1.00 lakh per borrower to prepay their debt to non-institutional lenders.
- Loans sanctioned to State Sponsored Organisations for Scheduled Castes/ Scheduled Tribes for the specific purpose of purchase and supply of inputs and/or the marketing of the outputs of the beneficiaries of these organisations.
- Loans up to Rs 50 crore to Start-ups, as per definition of Ministry of Commerce and Industry, Govt. of India that are engaged in activities other than Agriculture or MSME.
For the purpose of Priority Sector Loans, following categories of persons are to be categorized under weaker section:-
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