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BRIEF NOTE ON PRIORITY SECTOR LENDING

The basic objective of setting priority sector targets / sub-targets has been toensure greater flow of credit to certain sectors where credit would normally notflow to the desired extent. The credit is required for these sectors in terms of

employment generation potential of these sectors and also social objective ofreaching out to large masses of economically vulnerable sections of population.

1. Sectors/ broad categories of PSL

Presently, the broad categories of priority sector for all scheduled commercialbanks are as under:

(a) Agriculture (Direct and Indirect finance)(b) Micro and Small Enterprises (Direct and Indirect Finance):(c) Micro Credit (credit and other financial services and products of very small

amounts not exceeding 50,000 per borrower, either directly or indirectlythrough a SHG/JLG mechanism or to NBFC/MFI for on-lending up to 50,000per borrower, will constitute micro credit).

(d) Education loans (loans and advances granted to only individuals for educationalpurposes up to 10 lakh for studies in India and 20 lakh for studies abroad,and do not include those granted to institutions)

(e) Housing Loans up to 25 lakh to individuals for purchase/construction ofdwelling unit per family (excluding loans granted by banks to their ownemployees) and loans given for repairs to the damaged dwelling units of families

up to 1 lakh in rural and semi-urban areas and up to 2 lakh in urban and

metropolitan areas.

2. Targets/sub-targets prescribed for PSL

(a) Priority sector lending presently has an overall target of 40 per centofAdjusted Net Bank Credit (ANBC);(b) There are three sub-targets for lending, namely agriculture (18% ofANBC), weaker sections (10% of ANBC) and under the Differential Rateof Interest (DRI) Scheme (1% of total advances outstanding as at the end of theprevious year).

While agriculture credit target is sectoral the other two targets arebeneficiary oriented and subsumed in overall priority sector target. Atpresent targets / sub-targets are prescribed for those sectors where thereis a need to boost lending.

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3. Sub- categories of Weaker Sections under PSL:

(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 Rehabilitation of Mannual Scavengers (SRMS);

(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.

4. Details of targets/sub-targets as per RBIs Master Circular on priority sectorlending for domestic and foreign banks

Domestic commercial banks Foreign banks

Total PrioritySectoradvances

40 per cent of Adjusted Net Bank Credit (ANBC)or credit equivalent amount of Off-BalanceSheet Exposure, whichever is higher.

32 per cent of ANBC orcredit equivalentamount of Off-BalanceSheet Exposure,

whichever is higher.Totalagriculturaladvances

18 per cent of ANBC or credit equivalentamount of Off-Balance Sheet Exposure,whichever is higher.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 performanceunder 18 per cent target. However, allagricultural advances under the categories'direct' and 'indirect' will be reckoned in

computing performance under the overallpriority sector target of 40 per cent of ANBC orcredit equivalent amount of Off-Balance SheetExposure, whichever is higher.

No target.

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Micro &SmallEnterpriseadvances(MSE)

Advances to micro and small enterprises sectorwill be reckoned in computing performanceunder the overall priority sector target of 40 percent of ANBC or credit equivalent amount ofOff-Balance Sheet Exposure, whichever is

higher.

10 per cent of ANBC orcredit equivalentamount of Off-BalanceSheet Exposure,whichever is higher

Microenterpriseswithin Microand SmallEnterprisessector

(i) 40 per cent of total advances to micro andsmall enterprises sector should go to micro(manufacturing) enterprises having investmentin plant and machinery up to ` 5 lakh and micro(service) enterprises having investment in

equipment up to ` 2 lakh;

(ii) 20 per cent of total advances to micro andsmall enterprises sector should go to micro

(manufacturing) enterprises with investment inplant and machinery above ` 5 lakh and up to `25 lakh, and micro (service) enterprises withinvestment in equipment above ` 2 lakh and upto ` 10 lakh. (Thus, 60 per cent of micro andsmall enterprises advances should go to themicro enterprises).

(iii)The increase in share of micro enterprises inMSE lending to 60 per cent should be achievedin stages, viz. 50 per cent in the year 2010-11,

55% in the year 2011-12 and 60% in the year2012-13.

Same as for domesticbanks.

Export credit Export credit is not a part of priority sector fordomestic commercial banks.

12 per cent of ANBC orcredit equivalentamount of Off-BalanceSheet Exposure,whichever is higher.

Advances toweakersections

10 per cent of ANBC or credit equivalentamount of Off-Balance Sheet Exposure,whichever is higher.

No target.

DifferentialRate ofInterestScheme

1 per cent of total advances outstanding as atthe end of the previous year. It should beensured that not less than 40 per cent of thetotal advances granted under DRI schemeshould go to scheduled caste/scheduled tribes.

At least two third of DRI advances should begranted through rural and semi-urban branches.

No target.

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RBI had constituted a Committee (Nair Committee) to re-examine the existing

classification and suggest revised guidelines with regard to Priority Sector Lending

classification. Report of the Committee has recently been presented and has been

placed on the RBIs website for seeking views/ comments from Banks, non-bank

financial institutions, other institutions and members of public. The report of the

Committee is available on the website of RBI at the following URL:

http://www.rbi.org.in/scripts/PublicationReportDetails.aspx?UrlPage=&ID=659