Priority sector lending process (PSL) - Changes by RBI

Priority sector lending process (PSL) - Changes by RBI
Question: Priority sector lending is the key to boosting infrastructural growth and sustainable development. Discuss the changes made by RBI recently in the priority sector lending process.

RBI: Changes to Priority Sector Lending/PSL

• Medium enterprises, social infrastructure as well as renewable energy now form part of the priority sector

• Difference between direct and indirect agriculture in the context of priority sector lending has been stopped

• Priority sector loans sanctioned against earlier guidelines will persist under the priority sector till repayment/maturity/renewal

• Target of 8% has been specified for small and marginal farmers within agriculture

• This will be achieved in a phased manner of around 7% by March 2016 and 8% by March 2017

• Target of 7.5 has bee prescribed for micro enterprises which will also be attained in phased manner: 7% by March 2016 and 7.5% by March 2017

• No change is there in the target of 10% for weaker sections

• Foreign banks with 20/more branches have priority sector targets and sub-targets for agriculture and weaker sections to be attained by March 31, 2018

• These banks will move to priority sector target of 40% on par with remaining banks by 2019-2020. The sub-targets for these banks will be made applicable in around 2020

• Sub-targets for small and marginal farmers and micro enterprises will be applied after 2018 following a 2017 review

• The sub-targets for small and marginal farmers and micro enterprises would be made applicable post 2018 after a review in 2017, the RBI said.

• Bank loans to food as well as agro processing units will be part of agriculture

• Export credit to 32% will be eligible as priority sector for foreign banks with lower than 20 branches

• For remaining banks, incremental export credit over corresponding date of preceding year will be up to 2%

• Loan limits for housing and MFI under priority sector have undergone revision
• Priority sector non achievement will be assessed on quarterly average basis at close of fiscal from 2016-2017 onwards

• RBI has also revamped priority sector lending in a big way through these changes

• Food and agro processing units will form part of agriculture now

• Loans to build agriculture infrastructure such as storage, soil conservation and watershed development will fall under farm lending; loans for ancillary activities will be part of farm lending

• For small as well as marginal farmers, banks will have to necessarily extend 8% of their overall
loans

• Bigger foreign banks have been asked to meet PSL targets by 2018 on par with domestic banks

• Target for small foreign banks will be brought on par with domestic banks by 2020

• Relief has been provided to smaller foreign banks in terms of export credit up to 32%

• Bank loans of around INR 5 crore per borrower will be for providing:

- Social infrastructure for school
- Health care facilities
- Drinking water facilities
- Sanitation facilities
for tier II to tier VI cities

• Within the renewable energy sector, bank loans of up to INR 15 crore for the following will be considered part of PSL:

- Solar based power generators
- Biomass power generators
- Wind Mills
- Micro Hydel Plants

• For individual households, loan limit is around INR 10,00,000 per borrower

• On domestic finance front, loans of up to INR 28 lakh in metros and INR 20 lakh in other centres will also come under PSL

• This is provided the cost of dwelling unit is INR 35 lakh in metros and INR 25 lakh in other centres

• As housing loans backed by long term bonds do not fall under PSL, such loans should either be under PSL or taken exemption from the same, but not both
• RBI has also exempted banks for maintaining CRR, SLR and PSL for long term bonds to fund affordable housing/infrastructure projects

• Banks have also been allowed to issue PSL certificates to other lenders to ensure shortfalls in meeting PSL targets are overcome

• Bank advances to MFIs for lending to individuals, SHGs and joint liability groups will also qualify as PSL only if MFI meets norms for micro lending.

• Each quarter, MFI have to furnish certificates from CA indicating guidelines have been followed

Facts and Stats

• Earlier there were direct and indirect lending sub-limits in the context of agriculture

• These two segments have been merged for banks to attain 18% agri target

• Large loans provided to processed food industry are also covered under agriculture

• Big ticket education loans will also receive a boost as INR 10 lakh loans will now be considered PSL in the education sector; this includes vocational courses