| RBI/2007-08/34
RPCD.
No. Plan. BC. 5 /04.09.01/ 2007-08 July
2, 2007 The
Chairman/ Managing Director/
Chief
Executive Officer
[All
scheduled commercial banks
(excluding
Regional Rural Banks)] Dear
Sir, MASTER
CIRCULAR - LENDING TO PRIORITY SECTOR The
Reserve Bank of India has, from time to time, issued a number of guidelines/instructions/directives
to banks on lending to Priority Sector. In order to enable
the banks to have current instructions at one place, a Master Circular incorporating
the existing guidelines/instructions/directives on the subject has been prepared
and enclosed. This Master Circular consolidates all the circulars issued by Reserve
Bank on the subject up to June 30, 2007 as indicated in the Appendix.
2.
Please acknowledge receipt. Yours
faithfully, (G.
Srinivasan)
Chief
General Manager
Section
I
Section II
Section III LENDING
TO PRIORITY SECTOR At
a meeting of the National Credit Council held in July 1968, it was emphasised
that commercial banks should increase their involvement in the financing of priority
sectors, viz., agriculture and small scale industries. The description of the
priority sectors was later formalised in 1972 on the basis of the report submitted
by the Informal Study Group on Statistics relating to advances to the Priority
Sectors constituted by the Reserve Bank in May 1971. On the basis of this report,
the Reserve Bank prescribed a modified return for reporting priority sector advances
and certain guidelines were issued in this connection indicating the scope of
the items to be included under the various categories of priority sector. Although
initially there was no specific target fixed in respect of priority sector lending,
in November 1974 the banks were advised to raise the share of these sectors in
their aggregate advances to the level of 33 1/3 per cent by March 1979. At
a meeting of the Union Finance Minister with the Chief Executive Officers of public
sector banks held in March 1980, it was agreed that banks should aim at raising
the proportion of their advances to priority sector to 40 per cent by March 1985.
Subsequently, on the basis of the recommendations of the Working Group on the
Modalities of Implementation of Priority Sector Lending and the Twenty Point Economic
Programme by Banks (Chairman: Dr. K. S. Krishnaswamy), all commercial banks were
advised to achieve the target of priority sector lending at 40 per cent of aggregate
bank advances by 1985. Sub-targets were also specified for lending to agriculture
and the weaker sections within the priority sector. Since then, there have been
several changes in the scope of priority sector lending and the targets and sub-targets
applicable to various bank groups. On
the basis of the recommendations made in September 2005 by the Internal Working
Group (Chairman: Shri C. S. Murthy), set up in Reserve Bank to examine, review
and recommend changes, if any, in the existing policy on priority sector lending
including the segments constituting the priority sector, targets and sub-targets,
etc. and the comments/suggestions received thereon from banks, financial institutions,
public and the Indian Banks’ Association (IBA), it was decided to include only
those sectors as part of the priority sector, that impact large sections of the
population, the weaker sections and the sectors which are employment-intensive
such as agriculture, and tiny and small enterprises. Presently,
the broad categories of priority sector for all scheduled commercial banks are
as under: I.
CATEGORIES OF PRIORITY SECTOR Agriculture
(Direct and Indirect finance): Direct finance to agriculture shall include
short, medium and long term loans given for agriculture and allied activities
(dairy, fishery, piggery, poultry, bee-keeping, etc.) directly to individual
farmers, Self-Help Groups (SHGs) or Joint Liability Groups (JLGs) of individual
farmers without limit and to others (such as corporates, partnership firms and
institutions) up to the limits indicated in Section I, for
taking up agriculture/allied activities. Indirect
finance to agriculture shall include loans given for agriculture and allied activities
as specified in Section I, appended. Small
Enterprises (Direct and Indirect Finance): Direct finance to small enterprises
shall include all loans given to micro and small (manufacturing) enterprises engaged
in manufacture/ production, processing or preservation of goods, and micro and
small (service) enterprises engaged in providing or rendering of services,
and whose investment in plant and machinery and equipment (original cost excluding
land and building and such items as mentioned therein) respectively, does not
exceed the amounts specified in Section I, appended. The micro and small (service)
enterprises shall include small road & water transport operators, small business,
professional & self-employed persons, and all other service enterprises, as
per the definition given in Section I appended. Indirect
finance to small enterprises shall include finance to any person providing inputs
to or marketing the output of artisans, village and cottage industries, handlooms
and to cooperatives of producers in this sector. (iii)
Retail Trade shall include retail traders/private retail traders dealing in
essential commodities (fair price shops), and consumer co-operative stores, as
per the definition given in Section I appended. (iv)
Micro Credit: Provision of credit and other financial services and products
of very small amounts not exceeding Rs. 50,000 per borrower, either directly or
indirectly through a SHG/JLG mechanism or to NBFC/MFI for on-lending up to Rs.
50,000 per borrower, will constitute micro credit. (v)
Education loans: Education loans include loans and advances granted to only
individuals for educational purposes up to Rs. 10 lakh for studies in India and
Rs. 20 lakh for studies abroad, and do not include those granted to institutions;
(vi)
Housing loans: Loans up to Rs. 20 lakh to individuals for purchase/construction
of dwelling unit per family, (excluding loans granted by banks to their own employees)
and loans given for repairs to the damaged dwelling units of families up to Rs.
1 lakh in rural and semi-urban areas and up to Rs. 2 lakh in urban and metropolitan
areas. II.
OTHER IMPORTANT FEATURES OF THE GUIDELINES (i)
Investments by banks in securitised assets, representing loans to various categories
of priority sector, shall be eligible for classification under respective categories
of priority sector (direct or indirect) depending on the underlying assets, provided
the securitised assets are originated by banks and financial institutions and
fulfil the Reserve Bank of India guidelines on securitisation. This would mean
that the banks' investments in the above categories of securitised assets shall
be eligible for classification under the respective categories of priority sector
only if the securitised advances were eligible to be classified as priority sector
advances before their securitisation. (ii)
Outright purchases of any loan asset eligible to be categorised under priority
sector, shall be eligible for classification under the respective categories of
priority sector (direct or indirect), provided the loans purchased are eligible
to be categorized under priority sector; the loan assets are purchased (after
due diligence and at fair value) from banks and financial institutions, without
any recourse to the seller; and the eligible loan assets are not disposed of,
other than by way of repayment, within a period of six months from the date of
purchase. (iii)
Investments by banks in Inter Bank Participation Certificates (IBPCs), on a risk
sharing basis, shall be eligible for classification under respective categories
of priority sector, provided the underlying assets are eligible to be categorised
under the respective categories of priority sector and are held for at least 180
days from the date of investment. (iv)
The targets and sub-targets under priority sector lending would be linked to Adjusted
Net Bank Credit (ANBC) (Net Bank Credit plus investments
made by banks in non-SLR bonds held in HTM category) or Credit Equivalent amount
of Off-Balance Sheet Exposures (OBE), whichever is higher, as on March 31 of the
previous year. The outstanding FCNR (B) and NRNR deposits balances will no longer
be deducted for computation of ANBC for priority sector lending purposes.
Investments made by banks in the Recapitalization Bonds floated by Government
of India will not be taken into account for the purpose. Existing investments,
as on April 30, 2007, made by banks in non-SLR bonds held in HTM category will
not be taken into account for calculation of ANBC, up to March 31, 2010. However,
fresh investments by banks in non-SLR bonds held in HTM category will be taken
into account for the purpose. Deposits placed by banks with NABARD/SIDBI, as the
case may be, in lieu of non-achievement of priority sector lending targets/sub-targets,
though shown under Schedule 8 – 'Investments' in the Balance Sheet at item I (vi)
– 'Others', will not be treated as investment in non-SLR bonds held under HTM
category. For the purpose of calculation of credit equivalent of off-balance sheet
exposures, banks may use current exposure method. Inter-bank exposures will not
be taken into account for the purpose of priority sector lending targets/sub-targets. (v)
Fresh deposits placed by banks' on or after April 30, 2007 with NABARD/SIDBI on
account of non-achievement of priority sector lending targets/sub-targets would
not be eligible for classification as indirect finance to agriculture/Small Enterprises
Sector, as the case may be. However, the deposits placed with NABARD/SIDBI
by banks on the above account and outstanding as on April 30, 2007 would
be eligible for classification as indirect finance to agriculture/Small Enterprises
sector, as the case may be, till the date of maturity of such deposits or March
31, 2010, whichever is earlier. III.
TARGETS/SUB-TARGETS The
targets and sub-targets set under priority sector lending for domestic and foreign
banks operating in India are furnished below:
|
Domestic
commercial banks | Foreign
banks | | Total
Priority Sector advances |
40
per cent of Adjusted Net Bank Credit (ANBC) or credit equivalent amount of Off-Balance
Sheet Exposure, whichever is higher. |
32
per cent of ANBC or credit equivalent amount of Off-Balance Sheet Exposure, whichever
is higher. | |
Total
agricultural advances |
18
per cent of ANBC or credit equivalent amount of Off-Balance Sheet Exposure, whichever
is higher. |
No
target. | |
Of
this, indirect lending in excess of 4.5% of ANBC or credit equivalent amount of
Off-Balance Sheet Exposure, whichever is higher, will not be reckoned for computing
performance under 18 per cent target. However, all agricultural advances under
the categories 'direct' and 'indirect' will be reckoned in computing performance
under the overall priority sector target of 40 per cent of ANBC or credit equivalent
amount of Off-Balance Sheet Exposure, whichever is higher. |
| Small
Enterprise advances |
Advances
to small enterprises sector will be reckoned in computing performance under the
overall priority sector target of 40 per cent of ANBC or credit equivalent amount
of Off-Balance Sheet Exposure, whichever is higher. |
10
per cent of ANBC or credit equivalent amount of Off-Balance Sheet Exposure, whichever
is higher. | |
Micro
enterprises within Small Enterprises sector |
40
per cent of total advances to small enterprises sector should go to micro (manufacturing)
enterprises having investment in plant and machinery up to Rs 5 lakh and micro
(service) enterprises having investment in equipment up to Rs. 2 lakh; 20
per cent of total advances to small enterprises sector should go to micro (manufacturing)
enterprises with investment in plant and machinery above Rs 5 lakh and up to Rs.
25 lakh, and micro (service) enterprises with investment in equipment above Rs.
2 lakh and up to Rs. 10 lakh. (Thus, 60 per cent of small enterprises advances
should go to the micro enterprises). |
Same
as for domestic banks. | |
Export
credit | Export
credit is not a part of priority sector for domestic commercial banks. |
12
per cent of ANBC or credit equivalent amount of Off-Balance Sheet Exposure, whichever
is higher. | |
Advances
to weaker sections |
10
per cent of ANBC or credit equivalent amount of Off-Balance Sheet Exposure, whichever
is higher. | No
target. | | Differential
Rate of Interest Scheme |
1
per cent of total advances outstanding as at the end of the previous year. It
should be ensured that not less than 40 per cent of the total advances granted
under DRI scheme go to scheduled caste/scheduled tribes. At least two third
of DRI advances should be granted through rural and semi-urban branches. |
No
target. | [ANBC
or credit equivalent of Off-Balance Sheet Exposures (as defined by Department
of Banking Operations and Development of Reserve Bank of India from time to time)
will be computed with reference to the outstanding as on March 31 of the previous
year. For this purpose, outstanding FCNR (B) and NRNR deposits balances will no
longer be deducted for computation of ANBC for priority sector lending purposes.
For the purpose of priority sector lending, ANBC denotes NBC plus investments
made by banks in non-SLR bonds held in HTM category. Investments made by banks
in the Recapitalization Bonds floated by Government of India will not be taken
into account for the purpose of calculation of ANBC. Existing investments, as
on the date of this circular, made by banks in non-SLR bonds held in HTM category
will not be taken into account for calculation of ANBC, up to March 31, 2010.
However, fresh investments by banks in non-SLR bonds held in HTM category will
be taken into account for the purpose. Deposits placed by banks with NABARD/SIDBI,
as the case may be, in lieu of non-achievement of priority sector lending targets/sub-targets,
though shown under Schedule 8 – 'Investments' in the Balance Sheet at item I (vi)
– 'Others', will not be treated as investment in non-SLR bonds held under HTM
category. For the purpose of calculation of credit equivalent of off-balance
sheet exposures, banks may use current exposure method. Inter-bank exposures will
not be taken into account for the purpose of priority sector lending targets/sub-targets.] The
detailed guidelines in this regard are given hereunder.
SECTION
I
| 1. |
AGRICULTURE |
| DIRECT
FINANCE | | 1.1 |
Finance
to individual farmers [including Self Help Groups (SHGs) or Joint Liability Groups
(JLGs), i.e. groups of individual farmers, provided banks maintain disaggregated
data on such finance] for Agriculture and Allied Activities (dairy, fishery, piggery,
poultry, bee-keeping, etc.) | |
|
1.1.1 |
Short-term
loans for raising crops, i.e. for crop loans. This will include traditional/non-traditional
plantations and horticulture. | | |
1.1.2 |
Advances
up to Rs. 10 lakh against pledge/hypothecation of agricultural produce (including
warehouse receipts) for a period not exceeding 12 months, irrespective of whether
the farmers were given crop loans for raising the produce or not. |
| |
1.1.3 |
Working
capital and term loans for financing production and investment requirements for
agriculture and allied activities. | | |
1.1.4 |
Loans to
small and marginal farmers for purchase of land for agricultural purposes. |
| |
1.1.5 |
Loans to
distressed farmers indebted to non-institutional lenders, against appropriate
collateral or group security. | | |
1.1.6 |
Loans granted
for pre-harvest and post-harvest activities such as spraying, weeding, harvesting,
grading, sorting, processing and transporting undertaken by individuals, SHGs
and cooperatives in rural areas. | |
1.2 |
Finance
to others [such as corporates, partnership firms and institutions] for Agriculture
and Allied Activities (dairy, fishery, piggery, poultry, bee-keeping, etc.) |
| |
1.2.1
Loans granted for pre-harvest and post harvest activities such as spraying, weeding,
harvesting, grading, sorting and transporting. | | |
1.2.2
Finance up to an aggregate amount of Rs. one crore per borrower for the purposes
listed at 1.1.1, 1.1.2, 1.1.3 and 1.2.1 above. | | |
1.2.3
One-third of loans in excess of Rs. one crore in aggregate per borrower for agriculture
and allied activities. | |
INDIRECT
FINANCE | | 1.3 |
Finance
for Agriculture and Allied Activities | | |
1.3.1
Two-third of loans to entities covered under 1.2 above in excess of Rs. one
crore in aggregate per borrower for agriculture and allied activities. |
| |
1.3.2
Loans to food and agro-based processing units with investments in plant and
machinery up to Rs. 10 crore, undertaken by those other than 1.1.6 above. |
| |
1.3.3 |
(i) |
Credit for
purchase and distribution of fertilisers, pesticides, seeds, etc. |
| | |
(ii) |
Loans up
to Rs. 40 lakh granted for purchase and distribution of inputs for the allied
activities such as cattle feed, poultry feed, etc. | | |
1.3.4 |
Finance
for setting up of Agriclinics and Agribusiness Centres. | | |
1.3.5 |
Finance
for hire-purchase schemes for distribution of agricultural machinery and implements. |
| |
1.3.6 |
Loans to
farmers through Primary Agricultural Credit Societies (PACS), Farmers’ Service
Societies (FSS) and Large-sized Adivasi Multi Purpose Societies (LAMPS). |
| |
1.3.7 |
Loans to
cooperative societies of farmers for disposing of the produce of members. |
| |
1.3.8 |
Financing
the farmers indirectly through the co-operative system (otherwise than by subscription
to bonds and debenture issues). | |
|
1.3.9 |
Existing
investments as on March 31, 2007, made by banks in special bonds issued by NABARD
with the objective of financing exclusively agriculture/allied activities may
be classified as indirect finance to agriculture till the date of maturity of
such bonds or March 31, 2010, whichever is earlier. Fresh investments in such
special bonds made subsequent to March 31, 2007 will, however, not be eligible
for such classification. | | |
1.3.10 |
Loans for
construction and running of storage facilities (warehouse, market yards, godowns,
and silos), including cold storage units designed to store agriculture produce/products,
irrespective of their location. | | | |
If the storage
unit is registered as SSI unit/micro or small enterprise, the loans granted to
such units may be classified under advances to Small Enterprises sector. |
| |
1.3.11 |
Advances
to Custom Service Units managed by individuals, institutions or organisations
who maintain a fleet of tractors, bulldozers, well-boring equipment, threshers,
combines, etc., and undertake work for farmers on contract basis. |
| |
1.3.12 |
Finance
extended to dealers in drip irrigation/sprinkler irrigation system/agricultural
machinery, irrespective of their location, subject to the following conditions: |
| | |
(a) |
The dealer
should be dealing exclusively in such items or if dealing in other products, should
be maintaining separate and distinct records in respect of such items. |
| | |
(b) |
A ceiling
of up to Rs. 30 lakh per dealer should be observed. | | |
1.3.13 |
Loans to
Arthias (commission agents in rural/semi-urban areas functioning in markets/mandies)
for extending credit to farmers, for supply of inputs as also for buying the output
from the individual farmers/ SHGs/ JLGs. | | |
1.3.14 |
Fifty per
cent of the credit outstanding under loans for general purposes under General
Credit Cards (GCC). | | |
1.3.15
| The
deposits placed in RIDF with NABARD by banks on account of non-achievement
of priority sector lending targets/sub-targets and outstanding as on April
30, 2007 would be eligible for classification as indirect finance to agriculture
sector till the date of maturity of such deposits or March 31, 2010, whichever
is earlier. | | |
1.3.16 |
Loans already
disbursed and outstanding as on April 30, 2007 to State Electricity Boards (SEBs)
and power distribution corporations/companies, emerging out of bifurcation/restructuring
of SEBs, for reimbursing the expenditure already incurred by them for providing
low tension connection from step-down point to individual farmers for energising
their wells and for Systems Improvement Scheme under Special Project Agriculture
(SI-SPA), are eligible for classification as indirect finance till the dates of
their maturity/repayment or March 31, 2010, whichever is earlier. Fresh advances
will, however, not be eligible for classification as indirect finance to agriculture. |
| |
1.3.17 |
Loans to
National Co-operative Development Corporation (NCDC) for on-lending to the co-operative
sector for purposes coming under the priority sector will be treated as indirect
finance to agriculture till March 31, 2010. | | |
1.3.18 |
Loans to
Non-Banking Financial Companies (NBFCs) for on lending to individual farmers or
their SHGs/JLGs. | | |
1.3.19 |
Loans granted
to NGOs/MFIs for on-lending to individual farmers or their SHGs/JLGs. |
| 2 |
Small
ENTERPRISES | |
DIRECT
FINANCE | | 2.1 |
Direct
Finance in the small enterprises sector will include credit to: |
| 2.1.1
Manufacturing Enterprises | |
(a) Small
(manufacturing) Enterprises | |
Enterprises
engaged in the manufacture/production, processing or preservation of goods and
whose investment in plant and machinery [original cost excluding land and building
and the items specified by the Ministry of Small Scale Industries vide its notification
no. S.O. 1722 (E) dated October 5, 2006] does not exceed Rs. 5 crore. |
| (b)
Micro (manufacturing) Enterprises | |
Enterprises
engaged in the manufacture/production, processing or preservation of goods and
whose investment in plant and machinery [original cost excluding land and building
and such items as in 2.1.1 (a)] does not exceed Rs. 25 lakh, irrespective
of the location of the unit. | |
2.1.2
Service Enterprises | |
(a)
Small (service) Enterprises | |
Enterprises
engaged in providing/rendering of services and whose investment in equipment (original
cost excluding land and building and furniture, fittings and other items not directly
related to the service rendered or as may be notified under the MSMED Act, 2006)
does not exceed Rs. 2 crore. | |
(b)
Micro (service) Enterprises | |
Enterprises
engaged in providing/rendering of services and whose investment in equipment [original
cost excluding land and building and furniture, fittings and such items as in
2.1.2 (a)] does not exceed Rs. 10 lakh. | |
(c)
The small and micro (service) enterprises shall include small road & water
transport operators, small business, professional & self-employed persons,
and all other service enterprises. | |
2.1.3
Khadi and Village Industries Sector (KVI) | |
All advances
granted to units in the KVI sector, irrespective of their size of operations,
location and amount of original investment in plant and machinery. Such advances
will be eligible for consideration under the sub-target (60 per cent) of the small
enterprises segment within the priority sector. | |
INDIRECT
FINANCE | 2.2 |
Indirect
finance to the small (manufacturing as well as service) enterprises sector will
include credit to: | | |
2.2.1 |
Persons
involved in assisting the decentralised sector in the supply of inputs to and
marketing of outputs of artisans, village and cottage industries. |
| |
2.2.2 |
Advances
to cooperatives of producers in the decentralised sector viz. artisans village
and cottage industries. | | |
2.2.3 |
Existing
investments as on March 31, 2007, made by banks in special bonds issued by NABARD
with the objective of financing exclusively non-farm sector may be classified
as indirect finance to Small Enterprises sector till the date of maturity of such
bonds or March 31, 2010, whichever is earlier. Investments in such special bonds
made subsequent to March 31, 2007 will, however, not be eligible for such classification.
| | |
2.2.4 |
The deposits
placed with SIDBI by foreign banks, having offices in India, on account of
non-achievement of priority sector lending targets/sub-targets and outstanding
as on April 30, 2007 would be eligible for classification as indirect finance
to Small Enterprises sector till the date of maturity of such deposits or March
31, 2010, whichever is earlier. | | |
2.2.5 |
Loans granted
by banks to NBFCs for on-lending to small and micro enterprises (manufacturing
as well as service). | |
3. |
RETAIL
TRADE | | |
3.1 Advances
granted to retail traders dealing in essential commodities (fair price shops),
consumer co-operative stores, and; | | |
3.2
Advances granted to private retail traders with credit limits not exceeding Rs.
20 lakh. | | 4. |
MICRO
CREDIT | | |
4.1 Loans
of very small amount not exceeding Rs. 50,000 per borrower provided by banks either
directly or indirectly through a SHG/JLG mechanism or to NBFC/MFI for on-lending
up to Rs. 50,000 per borrower. | | |
4.2 Loans
to poor indebted to informal sector | | |
Loans to
distressed persons (other than farmers) to prepay their debt to non-institutional
lenders, against appropriate collateral or group security, would be eligible for
classification under priority sector. | |
5. |
State
Sponsored Organizations for Scheduled Castes/Scheduled Tribes |
| |
Advances
sanctioned to State Sponsored Organisations for Scheduled Castes/ Scheduled Tribes
for the specific purpose of purchase and supply of inputs to and/or the marketing
of the outputs of the beneficiaries of these organisations. | |
6. |
Education |
| |
6.1
Educational loans granted to individuals for educational purposes up to Rs. 10
lakh for studies in India and Rs. 20 lakh for studies abroad. Loans granted to
institutions will not be eligible to be classified as priority sector advances. |
| |
6.2
Loans granted by banks to NBFCs for on-lending to individuals for educational
purposes up to Rs. 10 lakh for studies in India and Rs. 20 lakh for studies abroad. |
| 7. |
Housing |
| |
7.1 |
Loans up
to Rs. 20 lakh, irrespective of location, to individuals for purchase/construction
of a dwelling unit per family, excluding loans granted by banks to their own employees. |
| |
7.2 |
Loans given
for repairs to the damaged dwelling units of families up to Rs. 1 lakh in rural
and semi-urban areas and up to Rs. 2 lakh in urban and metropolitan areas. |
|
7.3 |
Assistance
given to any governmental agency for construction of dwelling units or for slum
clearance and rehabilitation of slum dwellers, subject to a ceiling of Rs. 5 lakh
of loan amount per dwelling unit. | |
7.4 |
Assistance
given to a non-governmental agency approved by the NHB for the purpose of refinance
for construction/reconstruction of dwelling units or for slum clearance and rehabilitation
of slum dwellers, subject to a ceiling of loan component of Rs. 5 lakh per dwelling
unit. | | 8. |
Weaker
Sections | | |
The weaker
sections under priority sector shall include the following: | | |
(a) Small
and marginal farmers with land holding of 5 acres and less, and landless labourers,
tenant farmers and share croppers; | | |
(b) Artisans,
village and cottage industries where individual credit limits do not exceed Rs.
50,000; | | |
(c) Beneficiaries
of Swarnjayanti Gram Swarozgar Yojana (SGSY); | | |
(d) Scheduled
Castes and Scheduled Tribes; | | |
(e) Beneficiaries
of Differential Rate of Interest (DRI) scheme; | | |
(f) Beneficiaries
under Swarna Jayanti Shahari Rozgar Yojana (SJSRY); | | |
(g) Beneficiaries
under the Scheme for Liberation and Rehabilitation of Scavengers (SLRS); |
| |
(h) Advances
to Self Help Groups; | | |
(i) Loans
to distressed poor to prepay their debt to informal sector, against appropriate
collateral or group security. | | |
(j) Loans
granted under (a) to (i) above to persons from minority communities as may be
notified by Government of India from time to time. In
States, where one of the minority communities notified is, in fact, in majority,
item (j) will cover only the other notified minorities. These States/Union Territories
are Jammu & Kashmir, Punjab, Sikkim, Mizoram, Nagaland and Lakshadweep. |
| 9. |
Export
Credit | | |
This category
will form part of priority sector for foreign banks only. |
| PENALTIES
for NON-ACHIEVEMENT OF PRIORITY SECTOR LENDING TARGET / SUB-TARGETS |
| 1. |
Domestic
scheduled commercial banks – Contribution by banks to Rural Infrastructure Development
Fund (RIDF): | | |
1.1
Domestic scheduled commercial banks having shortfall in lending to priority sector
target (40 per cent of ANBC or credit equivalent amount of Off-Balance Sheet Exposure,
whichever is higher) and / or agriculture target (18 per cent of ANBC or credit
equivalent amount of Off-Balance Sheet Exposure, whichever is higher) shall be
allocated amounts for contribution to the Rural Infrastructure Development Fund
(RIDF) established with NABARD. For the purpose of allocation of RIDF tranche,
the achievement level of priority sector lending as on the last reporting Friday
of March of the immediately preceding financial year will be taken into account.
The concerned banks will be called upon by NABARD, on receiving demands from various
State Governments, to contribute to RIDF. | | |
1.2 The
corpus of a particular tranche of RIDF is decided by Government of India every
year. Fifty per cent of the corpus shall be allocated among the domestic commercial
banks having shortfall in lending to priority sector target of 40 per cent of
ANBC or credit equivalent amount of Off-Balance Sheet Exposure, whichever is higher,
on a pro-rata basis. The balance fifty per cent of the corpus shall be allocated
among the banks having shortfall in lending to agriculture target of 18 per cent
of ANBC or credit equivalent amount of Off-Balance Sheet Exposure, whichever is
higher, on a pro-rata basis. The amount of contribution by banks to a particular
tranche of RIDF will be decided in the beginning of the financial year. |
| |
1.3 The
interest rates on banks’ contribution to RIDF shall be fixed by Reserve Bank of
India from time to time. | | |
1.4
Details regarding operationalisation of the RIDF such as the amounts to be deposited
by banks, interest rates on deposits, period of deposits, etc., will be communicated
to the concerned banks separately by August of each year to enable them to plan
their deployment of funds. | |
2. |
Foreign
Banks – Deposit by Foreign Banks with SIDBI | |
|
2.1
The foreign banks having shortfall in lending to stipulated priority sector target/sub-targets
will be required to contribute to Small Enterprises Development Fund (SEDF) to
be set up by Small Industries Development Bank of India (SIDBI), or for such other
purpose as may be stipulated by Reserve Bank of India from time to time. |
| |
2.2 For
the purpose of such allocation, the achievement level of priority sector lending
as on the last reporting Friday of March of the immediately preceding financial
year will be taken into account. | | |
2.3 The
corpus of SEDF shall be decided by Reserve Bank of India on a year-to-year basis.
The tenor of the deposits shall be for a period of three years or as decided by
Reserve Bank from time to time. Fifty per cent of the corpus shall be contributed
by foreign banks having shortfall in lending to priority sector target of 32 per
cent of ANBC or credit equivalent amount of Off-Balance Sheet Exposure, whichever
is higher, on a pro-rata basis. The balance fifty per cent of the corpus shall
be contributed by foreign banks having aggregate shortfall in lending to Small
Enterprises sector and export sector of 10 per cent and 12 per cent respectively,
of ANBC or credit equivalent amount of Off-Balance Sheet Exposure, whichever is
higher, on a pro-rata basis. The contribution required to be made by foreign banks
would, however, not be more than the amount of shortfall in priority sector lending
target/sub-targets of the foreign banks. | | |
2.4 The
concerned foreign banks will be called upon by SIDBI/or such other institution
as may be decided by Reserve Bank, as and when funds are required by them, after
giving one month’s notice. | |
2.5 The
interest rates on foreign banks’ contribution, period of deposits, etc. shall
be fixed by Reserve Bank of India from time to time. | |
3. |
Non-achievement
of priority sector targets and sub-targets will be taken into account while granting
regulatory clearances/approvals for various purposes. |
| common
guidelines for priority sector advances | |
1 |
Banks
should follow the following common guidelines prescribed by the Reserve Bank for
all categories of advances under the priority sector. |
| 2 |
Processing
of Applications | |
2.1 |
Completion
of Application Forms | | |
In
case of Government sponsored schemes such as SGSY, the concerned project authorities
like DRDAs, DICs, etc. should arrange for completion of application forms received
from borrowers. In other areas, the bank staff should help the borrowers for this
purpose. | | 2.2 |
Issue
of Acknowledgement of Loan Applications | | |
Banks
should give acknowledgement for loan applications received from weaker sections.
Towards this purpose, it may be ensured that all loan application forms have perforated
portion for acknowledgement to be completed and issued by the receiving branch.
Each branch may affix on the main application form as well as the corresponding
portion for acknowledgement, a running serial number. While using the existing
stock of application forms which do not have a perforated portion for acknowledgement
separately given, care should be taken to ensure that the serial number given
on the acknowledgement is also recorded on the main application. The loan applications
should have a check list of documents required for guidance of the prospective
borrowers. | |
2.3 |
Disposal
of Applications | | |
(i)
All loan applications up to a credit limit of Rs. 25,000 should be disposed of
within a fortnight and those for over Rs. 25,000, within 8 to 9 weeks. (ii)
All loan applications for Small Enterprises up to a credit limit of Rs. 25,000
should be disposed of within 2 weeks and those up to Rs. 5 lakh within 4 weeks,
provided the loan applications are complete in all respects and are accompanied
by a 'check list'. | |
2.4 |
Rejection
of Proposals | | |
Branch
Managers may reject applications (except in respect of SC/ST) provided the cases
of rejection are verified subsequently by the Divisional/Regional Managers. In
the case of proposals from SC/ST, rejection should be at a level higher than that
of Branch Manager. | |
2.5 |
Register
of Rejected Applications | | |
A
register should be maintained at the branch, wherein the date of receipt, sanction/rejection/disbursement
with reasons therefor, etc., should be recorded. The register should be made available
to all inspecting agencies. | |
3 |
Mode
of Disbursement of Loan | | |
With
a view to providing farmers wider choice as also eliminating undesirable practices,
banks may disburse all loans for agricultural purposes in cash which will facilitate
dealer choice to borrowers and foster an environment of trust. However, banks
may continue the practice of obtaining receipts from borrowers. |
| 4 |
Repayment
Schedule | |
4.1 |
Repayment
programme should be fixed taking into account the sustenance requirements, surplus
generating capacity, the break-even point, the life of the asset, etc., and not
in an 'ad hoc' manner. In respect of composite loans, repayment schedule may be
fixed for term loan component only. | |
4.2 |
As
the repaying capacity of the people affected by natural calamities gets severely
impaired due to the damage to the economic pursuits and loss of economic assets,
the benefits such as restructuring of existing loans, etc. as envisaged under
our circular RPCD.CO.PLFS.NO. BC 16/05.04.02/2006-07 dated August 9, 2006 may
be extended to the affected borrowers. | |
5 |
Rates
of Interest | |
5.1 |
The
rates of interest on various categories of priority sector advances will be as
per RBI directives issued from time to time. | |
5.2 |
(a)
In respect of direct agricultural advances, banks should not compound the interest
in the case of current dues, i.e. crop loans and instalments not fallen due in
respect of term loans, as the agriculturists do not have any regular source of
income other than sale proceeds of their crops. | | |
(b)
When crop loans or instalments under term loans become overdue, banks can
add interest to the principal. | | |
(c)
Where the default is due to genuine reasons banks should extend the period
of loan or reschedule the instalments under term loan. Once such a relief has
been extended, the overdues become current dues and banks should not compound
interest. | | |
(d)
Banks should charge interest on agricultural advances in respect of long duration
crops, at annual rests instead of quarterly or longer rests, and could compound
the interest, if the loan/instalment becomes overdue. |
| 6 |
Penal
Interest | |
|
6.1.1 |
The
issue of charging penal interests that should be levied for reasons such as default
in repayment, non-submission of financial statements, etc. has been left to the
Board of each bank. Banks have been advised to formulate policy for charging such
penal interest with the approval of their Boards, to be governed by well accepted
principles of transparency, fairness, incentive to service the debt and due regard
to difficulties of customers. | | |
6.1.2 |
No
penal interest should be charged by banks for loans under priority sector up to
Rs 25,000 as hitherto. However, banks will be free to levy penal interest for
loans exceeding Rs 25,000, in terms of the above guidelines. |
| 7. |
SERVICE
CHARGES / INSPECTION CHARGES
|
| |
7.1.1 |
No
service charges/inspection charges should be levied on priority sector loans up
to Rs. 25,000. | |
|
7.1.2 |
For loans
above Rs. 25,000/- banks will be free to prescribe service charges with the prior
approval of their Boards, in terms of circular No. DBOD.Dir.BC.86/03.01.00/99-2000
dated September 7, 1999. | |
8. |
Insurance
against Fire and Other Risks | |
8.1 |
Banks
may waive insurance of assets financed by bank credit in the following cases: |
| No. |
Category |
Type
of Risk | Type
of Assets | |
(a) |
All
categories of priority sector advances up to and inclusive of Rs. 10,000 |
Fire
& other risks | Equipment
and current assets | |
(b) |
Advances
to SSI sector up to and inclusive of Rs. 25,000 by way of - | | |
- Composite
loans to artisans, village and cottage industries
|
Fire |
Equipment
and current assets | |
| Fire |
Equipment |
- Working
capital where these are against non-hazardous goods
|
Fire |
Current
Assets | | |
8.2 |
Where,
however, insurance of vehicle or machinery or other equipment/assets is compulsory
under the provisions of any law or where such a requirement is stipulated in the
refinance scheme of any refinancing agency or as part of a Government-sponsored
programmes such as SGSY, insurance should not be waived even if the relative credit
facility does not exceed Rs. 10,000 or Rs. 25,000, as the case may be. |
| 9. |
Photographs
of Borrowers | |
|
While
there is no objection to taking photographs of the borrowers for purposes of identification,
banks themselves should make arrangements for the photographs and also bear the
cost of photographs of borrowers falling in the category of Weaker Sections. It
should also be ensured that the procedure does not involve any delay in loan disbursement. |
| 10 |
Discretionary
Powers | |
|
All
Branch Managers of banks should be vested with discretionary powers to sanction
proposals from weaker sections without reference to any higher authority. If there
are difficulties in extending such discretionary powers to all the Branch Managers,
such powers should exist at least at the district level and arrangements be ensured
that credit proposals on weaker sections are cleared promptly. |
| 11 |
Machinery
to look into Complaints | |
|
11.1.1 |
There
should be machinery at the regional offices to entertain complaints from the borrowers
if the branches do not follow these guidelines, and to verify periodically that
these guidelines are scrupulously implemented by the branches. |
| |
11.1.2 |
The
names and addresses of the officer with whom complaints can be lodged should be
displayed on the notice board of every branch. | |
12 |
Amendments |
| |
These
guidelines are subject to any instructions that may be issued by the RBI from
time to time. |
Appendix Master
Circular LENDING
TO PRIORITY SECTOR List
of Circulars consolidated by the Master Circular
| No. |
Circular
No. | Date |
Subject |
Paragraph
No. | |
1. |
RPCD.Plan.BC.No.
10856/04.09.01/2006-07 |
18.05.07 |
Revised
Guidelines on Lending to Priority Sector – Weaker Sections |
I.
8 (j) | |
2. |
RPCD.Plan.BC.No.84/04.09.01/2006-07 |
30.04.07 |
Guidelines
on lending to priority sector -- Revised |
Section
I & II | |
3. |
RPCD.
Plan. BC. 53/04.09.01/ 2002-03 |
20.10.02 |
Levying
of service charges and inspection charges by banks in respect of priority sector
loans | III.
7.1.1, 7.1.2 | |
4. |
RPCD.
PLNFS. BC. 24/06.02.77/ 2002-03 |
04.10.02 |
Flow
of credit to SSIs – Time schedule for disposal of loan applications |
III.
2.3 (ii) | | 5. |
RPCD.
Plan. BC. 15/ 04.09.01/ 2001-02 |
17.08.2001 |
Charging
of penal interest by banks on priority sector loans |
IIII.6.1.1,
6.1.2 | | 6. |
RPCD.No.Plan.BC.77/PL-09.01/
89-90 | 18.01.90 |
Lending
to Priority Sector – Loan Application Forms |
III.
2.2 | | 7. |
RPCD.No.Plan.BC.67/PS.22/87-88 |
12.12.87 |
Advances
to Priority Sector - Issue of Acknowledgement to Applicants from Weaker Sections |
III.
2.2 | | 8. |
RPCD.No.SP.BC.64/C.568A(P)/87-88 |
08.12.87 |
IRDP
– Uniform Application Form - Issue of Acknowledgement Slip |
III.
2.2 | | 9. |
RPCD.No.PS.BC.22/C.682/83-84 |
06.02.84 |
Monitoring
advances to priority sector |
--- |
| 11. |
DBOD.No.BP.BC.126/C.464
(M)-80 | 29.10.80 |
Report
of the Working Group on the Modalities of Implementation of Priority Sector Lending |
--- |
| 12. |
DBOD.No.BP.BC.178/C.453
(U)-78 | 22.12.78 |
Differential
Rate of Interest Scheme |
--- |
| 13. |
DBOD.No.BP.1900/C.453
(U)-77 | 06.07.77 |
Scheme
of DRI | --- |
|