RBI/2004-05/70
RPCD. Plan. BC. No. 9 /04.09.01/2004-05
July 26, 2004
The Chairman/ Managing Director/Chief
Executive Officer
(All domestic scheduled commercial
banks)
Dear Sir,
Priority Sector Lending –
Achievement of target/sub-targets
As you are aware, a target of 40 per cent of Net
Bank Credit has been stipulated for lending to priority sector by domestic scheduled
commercial banks within which sub-targets of 18 per cent and 10 per cent of
Net Bank Credit have been stipulated for lending to agriculture and weaker sections.
Moreover, the domestic scheduled commercial banks are also required to lend
1 per cent of previous year's aggregate advances under the Differential Rate
of Interest (DRI) scheme.
2. It is, however, observed that
most of the banks have not achieved the stipulated targets/sub-targets under
priority sector lending. Various Standing Committees of the Parliament have
also shown concern over the poor performance of the banks in achievement of
targets/sub-targets.
3. Further, as per the interest
rate policy of Reserve Bank of India, interest rates on loans given by commercial
banks have been deregulated, except that the interest rate on loans up to Rs
2 lakh should not exceed the banks' Prime Lending Rate (PLR). Subsequently in
April 2001, the stipulation of PLR being the floor rate of loans above Rs 2
lakh has been withdrawn and banks are now free to lend at sub- PLR rates to
creditworthy borrowers based on an objective and transparent policy subject
to the approval of their Board. However, it has been brought to our notice that
some bank branches are demanding higher rates of interest even on loans up to
Rs. 2 lakh.
4. Given the importance the Government
of India and Reserve Bank of India attach to priority sector lending, you may
please take appropriate steps to increase the flow of credit to priority sector,
agriculture and weaker sections so that the stipulated targets are achieved
at the earliest and also strictly observe the Reserve Bank directives on interest
rates on loans. A suitable circular may also please be issued to your controlling
offices and branches reiterating the instructions relating to interest rates
on advances.
4. Please acknowledge receipt.
Yours faithfully,
(C. S. Murthy)
Chief General Manager-in-Charge