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The Reserve Bank of India has issued Master directions on Priority Sector Lending- targets and classification on 4th September 2020. In this article, we shall take a look at the major changes implemented through the master directions.
The master directions were issued with an objective to harmonize instruction guidelines for commercial banks, small finance banks, Regional Rural Banks, Urban Co-operative Banks, and Local Area Banks; align these guidelines with emerging national priorities, and bring focus on inclusive development.
The revised guidelines also look to encourage and support environment-friendly lending policies to help in achieving Sustainable development goals. The objective of this is also to consolidate all concerning circulars to PSL under one master direction.
The targets and sub-targets set under the Priority Sector Lending (PSL) are computed on the percentage basis of Adjusted Net Bank Credit/ Credit Equivalent of Off-Balance Sheet Exposures.
The master directions issued by the Reserve Bank has increased the total PSL target for Urban Co-Operative Banks, which has to be achieved through milestones based targets in a phased manner. Moreover, there has been an increase in targets for advances to weaker sections and Small Farmer Margins in the agriculture sector.
The changes are summarised in the table provided below:
|Categories||Domestic Commercial Banks||Small Finance Banks||RRB||UCB|
|Total Priority Sector ||No change||No change||No change||Increase in total priority sector target from 40% to 75% of ANBC/CEOBEWhichever is higher|
|Advances to weaker sections Target||Increased to 12% of ANBC or CEOBE;Whichever is higher||Increased to 12% of ANBC or CEOBE;Whichever is higher||No Change||Increased to 12% of ANBC or CEOBE;Whichever is higher|
|AgricultureTarget||No change||Small Marginal Farmers target increased to 10 % of the 18% of ANBC or CEOBE;Whichever is higher||Small Marginal Farmers target increased to 10 % of the 18% of ANBC or CEOBE;Whichever is higher||No Target|
|Micro enterprises||No change||No change||No change||No change|
THE adjusted PSL mechanism has been implemented under the new regime to incentivize the flow of credit to underserved districts. There shall be no change in the underlying sectors eligible for PSL; however, an additional weightage has been given to lending to the underserved districts.
Accordingly, from the financial year 2021-22 onwards, a higher weight (125%) will be assigned to incremental priority sector credit in the identified districts where credit flow is comparatively lower, i.e., per capita PSL less than 6000 rupees, and lower weight (90%) will be assigned for incremental priority sector credit in the identified districts where credit flow is comparatively higher, i.e., per capita, PSL is greater than 25000 rupees.
Regional Rural Banks, Urban Co-operative Banks, Local Area Banks, and foreign banks will be exempted from adjustments of weights in PSL achievement owing to their currently limited area of operation.
With the inclusion of fresh categories eligible for finance under the priority sector, there has been an enhancement in the credit limit of the existing categories.
Some of the changes are as mentioned below:
Along with the benefits extended to MSMEs, loans up to 50 crore rupees to startups, according to the definition of the Ministry of Commerce and Industry that confirm to the MSME definition, has been included in the Priority Sector Lending category.
Bank loans up to a limit of 10 crore rupees per borrower to build health care facilities, including under Ayushman Bharat in tier II to tier VI centres. It is in addition to the existing limit of 5 crore rupees per borrower for setting up schools, drinking water, and sanitation facilities.
Increase in loan limit to 30 crore rupees for solar-based power generators, biomass-based power generators, wind mills, micro hydel plants, and for non-conventional energy based public utilities.
Inclusion of loans to meet local needs like house construction/repair, toilet construction not exceeding 2 lakh rupees provided by banks to SHG/JLG for activities other than agriculture or MSME.