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Revisions to the priority sector lending (PSL) norms in April
this year will benefit several struggling sectors. The Reserve Bank of India has
directed banks to give 8% of their loans to small and marginal farmers (those
with less than 2 hectares of land). In addition to the existing categories, new
sectors like renewable energy, social infrastructure and medium enterprises have
been included under PSL.
What is Priority
Sector Lending?
As per RBI regulations, banks have to set aside a specific portion
of their total lending to important sectors like agriculture, small scale
industries, etc. This was introduced to ensure overall growth of the economy as
against that of a few sectors.
Agriculture, micro and small enterprises, export credit, social infrastructure,
renewable energy, education, certain categories of housing and others have been enlisted as priority sectors.
Highlights of the
revised PSL norms
1.
Micro enterprises, those whose investment in machinery
and other fixed assets does not extend 25 lakhs, will get 7.5% of banks’ loans.
2.
The central bank has done away with the
distinction between direct and indirect agricultural lending. Thus, loans to
food and agro-processing units, namely short/medium/long term credit, loans for
agricultural infrastructure and ancillary activities, will be clubbed together. This will make it easier for banks to achieve the 18% agri loan
target.
3.
Foreign banks with less than 20 branches will
also have to lend 40% of their net credit to the priority sector like other banks.
However, they have been given time till the end of the fiscal year 2020 to do
so. Foreign banks can also include export credit upto 32% of their priority sector.
4.
There is no change in the target of 10 percent
of ANBC or Credit Equivalent Amount of Off-Balance Sheet Exposure, whichever is
higher, for Weaker Sections.
5.
To ensure banks’ compliance with the revision,
RBI will assess non-achievement of PSL norms on a quarterly average basis at
the end of every year from 2016-17 onwards, instead of annual basis.
6.
Loan limits for housing and MFI sectors under
priority sector have been revised. Home loans upto Rs.28 lakh in metros and Rs.20
lakh in other centers will be part of the lending provided the property cost
does not exceed Rs.35 lakh and Rs.25 lakh, respectively.
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