New Priority Sector Guidelines > 5 Points
-
Upload
manoj-rawat -
Category
Documents
-
view
4 -
download
2
description
Transcript of New Priority Sector Guidelines > 5 Points
-
New Priority Sector Guidelines 5 Points 2015
1 Manoj Rawat | [email protected]
New Priority Sector Guidelines - 5 points which more than meets the eye!
Revamped PSL guidelines aim to create a major shift in Priority sector banking by ensuring
credit access to Small & Marginal Farmers, Smaller Agro-processing units, enabling backward
linkages and promoting renewable energy.
The release of Priority Sector Guidelines was accelerated by Regulator by 2 months and it seems
to aim to create a tactical shift in Priority Sector lending in India with focus on being the rural
and marginalised population.
As Regulator defines it,
Priority sector refers to
those sectors of the
economy which may not
get timely and adequate
credit in the absence of this
special dispensation.
Typically, these are small
value loans to farmers for
agriculture and allied
activities, micro and small
enterprises, poor people for
housing, students for education and other low income groups and weaker sections. These
guidelines enable credit flow to those sections. The spirit of guidelines remains unchanged
however the segments have been broad based.
-
New Priority Sector Guidelines 5 Points 2015
2 Manoj Rawat | [email protected]
While the target of 40 % of ANBC as priority sector has been retained with 18% of ANBC to
Agriculture, there are few important shifts and sub classifications which are critical to
understand
1. Credit to Small & Marginal Farmers: While direct and Indirect Agri lending has been
dispensed with but a sub-classification of 8% to Small & Marginal farmers will enable
credit flow to a large number of farmers in the country. Today the country has more
than 84% farmers as Small & Marginal and it is expected that with this change will
enable flow of Rs. 400,000 crore ( approx. USD 70 billion ) to Small & Marginal
Farmers in this year, should banks meet the target. While it seems a challenge for banks
with lesser Rural outreach but it offers an opportunity to give major boost to Rural &
Mass Banking with more innovative approach to increase the outreach and building a
strong technology framework that is focussed on creating mass scale access.
2. Credit to Agro-processing, Warehousing and Agri-infrastructure: This inclusion has
been widely appreciated as broadening the framework but it is important to note that
that the clause of Aggregate sanctioned limit of 100 crore per borrower from the
banking system. This means that the banks will have to focus on smaller companies &
enterprises which working primarily on backward linkages with farmers or are working
in missing link in Food and Agribusiness sector. The banks will now need to get into this
smaller segment with a much more focussed approach and cover many smaller
companies working in Rural India. There are millions of such enterprises & companies
which may offer a very profitable proposition under this segment besides helping
create the missing link Food & Agro Sector.
3. Micro & Small Enterprises Credit: Bank Credit to Micro, Small and Medium
Enterprises, for both manufacturing and service sectors are eligible to be classified under
the priority sector. However the sub classification of 7.5 % fo credit to Micro
Enterprises where the investment in Plant & Machinery in Less than Rs. 25 Lakh ( USD
0.04 Million) or Services industry where investment is less than Rs. 10 lakh ( USD 0.017
Million) will be an area where the banks will have to shift the focus. Considering that
fact that the country has close to 55 million plus such enterprises, there is ample
opportunity however all this will need wider outreach, good risk management
framework and change in banks approach to smaller & marginalised sectors.
4. Advances to weaker section: 10 % of credit flow to weaker section is another area
where banks will have to gear up. However if the banks are able achieve the targets in
Small and Marginal Farmers and under its Financial Inclusion plan, this target should
automatically get achieved.
5. Quarterly monitoring : The priority sector non-achievement will be assessed on
quarterly average basis at the end of the respective year from 2016-17 onwards, instead
of annual basis as at present and this shall keep the banks on toes and more focussed for
Priority Sector lending. It definitely has Net Interest Margin also penal implications,
for non-achievement.
-
New Priority Sector Guidelines 5 Points 2015
3 Manoj Rawat | [email protected]
New Inclusions focussed also towards Rural and Smaller Segments:
The inclusion of Renewable energy and Social Infra is another positive point. Its important that
upper limits of Rs. 15 crore per enterprise and Rs. 10 Lakh per household will ensure that it
creates renewable energy infrastructure in Rural areas especially in irrigation management,
drinking water and lighting systems. The upper cap of Rs 5 crore on social infra could help
build, modernise and resurrect infrastructure in smaller areas.
Priority Sector Lending Certificates
Banks will also be allowed to issue PSL certificates to other lenders to make good shortfalls in
meeting PSL targets. This will offer an opportunity to enjoy a premium for the banks which are
Rural focussed and are working in this segment with more than an Obligatory approach.
A pragmatic & progressive move
While the broad basing of the definition of Priority Sector is a progressive and pragmatic move,
its interesting to note that PSL has become far more directed to Small & Marginal farmers and
micro-Enterprises. The banks will need to gear up and revisit the strategy to achieve the targets
especially the sub-classification targets.
This year an amount of approx. Rs. 20,00,000 crore ( USD 315 bn ) is expected to flow under
Priority Sector Lending which could rejuvenate the overall development of Rural Ecosystem.
And add to this the recently announced ambitious schemes by
Government of India and Prime Minister for Financial Inclusion in
India like Pradhan Mantri Jandhan Yojana, National Rural Livelihood
mission, National Urban Livelihood Mission, Pradhan Mantri
Suraksha Bima Yojana, Pradhan Matntri Jeevan Jyoti Bima Yojana and
Atal Pension Yojana.
The Priority Sector Lending not only offers an opportunity to upscale
the banking and financial services in India, but it may well address
the most critical issues of Financial Inclusion, Food Security and
Social Security in India.
For banks the challenges do remain but the willingness to move from an obligatory to
opportunity approach, from Class to Mass banking and from Exclusive to
Inclusive strategy will remain the key.
And banks which may plan it otherwise have a way to offset the PSL targets by trading in
Priority Sector Lending Certificates and support the Banks which are more than willing to
reach the un-accessed.
Manoj Rawat Head, Agribusiness Group RBL Bank, Mumbai [email protected] | TheManojRawat |http://mkrawat.blogspot.in The views expressed in this article are purely personal.