The priority sector lending is mainly intended to ensure that the assistance from the banking system to those sectors of the economy which has not received adequate support of instituteonal finance. The attainment of the socio economic priorities of the government like growth of agriculture, promotion of small entrepreneurs and development of backward area etc is the major responsibility of commercial banks. Since seventies, Reserve Bank of India and government of India have stipulated guidelines for priority sector lending by banks. The same was revised on April 30, 2007 and overall priority sector lending target was fixed at 40 per cent for domestic banks and 32 per cent for foreign banks. However, the banks are not able to reach the prescribed target of lending to priority sector. The small entrepreneurs and farmers are continued to be both credit and demand constraints. Thus, it can be observed that the demand for funds for priority sector viz., small entrepreneurs and agricultural sector is enormous. With this backdrop, the present treatise is an attempt to diagnose the various lacunas of priority sector lending by commercial banks in the area under consideration in the context of national scenario.

Need for Priority Sector LendingThe objectives underlying the priority sector lending relate to ensuring the assistance from the banking system flows in anincreasing measure to those sectors of the economy which thoughcontributing significant proportion of national product have not received adequate support of institutional finance in the past. This inter-alia implied flow of required funds to various sectors of the economy in accordance with the national planned priorities. The social control on banks was imposed as a measure to employ prudently and socially desirable channels with the objective of achieving economic growth combined with stability and social justice. Even decades after independence, more than 70 percent of borrowing by cultivators was from informal sector. Lending from commercial banks was directed towards large industrial houses.Agricultural sector, small scale industries and weaker sections were more neglected because of both risk factor and urban bias. Although co-operative sector was there to serve the needs of agricultural sector it was unable to meet the credit demand of farm community. There was a need for ensuring an equitable and purposeful distribution of credit keeping in view relative priorities of developmental needs.

The Thrust Areas of Priority Sector Lending

The edifice of the priority sector lending that has emerged in the period after the nationalization of banks in 1969 is based on thefollowing pillars.

1. The system of priority sector lending has envisaged setting up of targets and sub-targets for financing of specific sectors. The share of priority sectors in total banks advances is 40 percent. Subtargets for agriculture and weaker sections are fixed at 18 percent and 10 percent of total advances respectively.

2.The interest rate policy under priority sector and non priority sector has been stipulated. Concessional rates of interest for the priority sector advances and relatively higher rate of interest for other sectors have been special features. This is known as cross subsidization policy. Here the losses arising on concessional loans are met out of the profits from other loans. This has facilitated flow of credit to the weaker sections of the society and neglected sections of the economy at relatively lower rates of interest.

3. Financing of loan accounts under priority sector may entail risk of default. Hence a separate insurance scheme guaranteeing a part of the loan of commercial banks was introduced in 1970 and the DICGC of India was established. The Corporation also provides deposit insurance to the depositors up to a prescribed limit. The Corporation operates various credit guarantee schemes relating to guarantee support to eligible credit institutions for 4 their priority sector advances to small borrowers and small scale industries.

4. Priority sector lending implies deliberate diversion of funds of the banks from the other sectors and that too at lower interest. To mitigate the ill effects of this on bank resources and onprofitability the schemes of refinance were formulated by NABARD in particular. Its advances about 42% to 45% of the ground level rural credit disbursed by banks.

Changing Criteria of Priority Sectors

In the post nationalization of 14 commercial banks in 1969 period the Reserve Bank of India was compelled to lay down targets for lending to specified sectors. Each major bank was given targets for lending to these sectors. A more comprehensive definition of priority sector was adopted in 1977. These were mainly in terms of sectors. It was realized in the early 1980s that even within priority sectors credit flow was more to the affluent sections. So the concept of weaker section was adopted within priority sector. It was categorically stated that the maximum benefit should be available to these weaker sections. By 1980s definition and quantitative targets had fully crystallized. There emerged the political interference to make use of these developments for vote bank politics for misuse of credit. As a result neither banking institutions nor the neglected sectors and sections were benefited. Thus the priority sector lending was effected. Financial sector reform became imperative. Thus the Narashimhan Committee 5 suggested for bringing down the priority sector target from 40 percent to 10 percent. This was not accepted by the Government.

The Pre and Post Reform PeriodFollowing are some of the major features of priority sector targets and classifications.

Targets of 40, 18 and 10 percent of net bank credit for total priority sector credit, sub targets of agricultural and weaker sections respectively remain same in both the periods.

Targets of 12 percent of export credit and 10 percent of SSI credit have been introduced for the foreign banks which were not there earlier even for domestic banks.

In the pre-reform period agricultural credit was earmarked directly for farmers but majority of whom, were small and marginal farmers. Agricultural credit was mainly for agricultural purposes,production, storage and transportation of agricultural or allied product.

In the post reform period ceiling of short term credit to be considered under priority sector has been increased to Rs. 1 lakh. Earlier credit to plantation crop was restricted to only small andmarginal farmers, but it is given irrespective of size.

In the category of direct advances to agriculture new acquisition of jeeps, pick up vans, mini buses, etc., have been included. These naturally will not be acquired by small and marginal farmers.

Indirect finance to agriculture was not a part of priority sector target earlier. Now finances to dealers, commission agents, non-6 banking financial companies, state electricity board and investing in selected bonds and depositing in apex level are not going to helpfarmers directly.

Inclusion of food and agro processing in the priority sector will give impetus and boost up the production of food crops.

Scope of small business under priority sector has been expanded to include business under enterprises with original cost price of equipment used for the purpose of business up to Rs. 10 lakhs from Rs. 2 lakhs earlier.

Professionals like accountants and solicitors are included in priority sector. These are not employment generating activities. They do not belong to weaker sections either.

Transport and road network are included in priority sector.

Housing was earlier exclusively for very poor segments. Now the ceilings up to Rs. 5 lakhs which can very well cover requirements of middle class people even in urban areas.

Education loan is considered under priority sector loan. Similarly consumption loan too is covered by priority sector credit.The above changes in the post bank reform era have led to the following aspects of priority sector credit by banks as of March 2001.

a) Agriculture (direct and indirect)

b) SSI (including the setting up of industrial estates and covering units with original cost of plant and machinery not exceeding Rs. 10 million)7

c) Small business (original cost of equipment used for the business not exceeding Rs. 1 million and a working capital of Rs. 50,000)

d) Small road and water transport operators owning 10 vehicles.

e) Retail trades (up to Rs. 50,000)

f) Professional and self employed persons (up to Rs. 50,000)

g) State sponsored organizations for scheduled castes and scheduled tribes.

h) Education (educational loans granted to individuals)

i) Housing loan (direct and indirect) upto Rs. 50,000.

j) Consumption loan under the consumption credit scheme for weaker sections.

k) Refinance by banks to RRBS.

l) Micro credit (direct and indirect)

m) Software industry (up to Rs. 10 million)

n) Agro and food processing sector and

o) Venture capital.

Historical Background of Priority Sector Lending

As far back as in 1967-68, the RBI in its credit policy has introduced the concept of PSL to tide over the severe imbalances, existed then both in agricultural and industrial fronts. In order to channelise the flow of credit to the priority sectors RBI had enunciated a credit policy. The major imped~ment before the introduction of the concept of PSL was that for various historical reasons, the bulk of bank advances was directed towards medium and large scale industries and big business houses, whereas, sectors like @@culture, small scale industries and export were languishing for want of funds. Theconcept of PSL was evolved to ensure the flow of adequate credit from banks to certain ~rioritised segments of the economy, as enunciated in the national planning priorities To give incentive to banks for lending to small borrowers under priority sector. the RBI in January 1971, has set up the Credit Guarantee Corporation of India Limited . now known as the Deposit Insurance and Credit Guarantee Corporation . The idea was to adm~nister a comprehensive credit guarantee scheme for loans by banks to the individual small borrowers under the priority sector. During the period of social control of banks, major banks did make an attempt to assist the agricultural sector by providing credit for marketing of agricultural products. Despite commercial banks' lending to agriculture under a) direct financing and b) indirect financing, the lending towards agriculture did not exceed two per cent of the total credit. It was in the post-bank nationalisation period only the PSL and massbanking concepts were crystalized for the purpose of credit deployment. After the bank nationalisation in July, 1969, RBI has adopted lending to the following broad segments under priority sector: (a) agriculture, (b) small scale industries and (c) exports. The composition of the priority sector remained somewhat vague even after the bank nationalisation. There was wicle variation as far as compiling PSL data are concerned among various banks. Later a more comprehensive classification of categories under PSL was evolved and adopted on the basis of a report submitted by Informal Study Group on statistics relating to priority sectors constituted by RBI'. Agriculture - direct and indirect finance Small scale industries. 'R. Srinivasan, Priority Sector Lending - A study of Indian Experience, Himalaya 'ublisbing Rouse, 1 995, Bombay, p .46, r Industrial estates.Road and water transport operation.0 Retail traders.Small business,Professionals and self-employed persons.r Education The composition of PSL was reviewed in the early eighties when the 20- Point Programme and IRDP were introduced. These programmes were dovetailed with bank assistance in the form of loan under weaker section beneficiaries within priority sector and a separate sub-target for lending to them was introduced. In the meeting that the then Union Finance Minister had with the Chief Executives of public sector banks on 15" February, 1982, it was decided that all Commercial banks should actively partic~pate in the implementation of 20-Point Programme In November, 1974, banks were advised to raise the share of PSL to 33.3 per cent by March, 1979'. Private sector banks werealso advised to achieve the same target. RBI has directed all the Commercial banks to ensure the flow of 40 per cent of the net bank credit to pnority sector by March 1985 from the then stipulated level of 33.3 per cent. The increase in the percentage flow was emphasised mainly to ensure that adequate flow goes to the weaker section beneficiaries particularly under IRDP. The system of giving separate sub-targets for agriculture and weaker section was started during the early eighties,

Advances to Weaker Sections

The weaker section loan is given to the followng categories of beneficiaries:

a) small and marginal farmers with land holding of less than 5 acres or landless labourers, tenants and share croppers.

b) artisans (irrespective of location) or small industrial activities in villages and small towns with a population not exceeding 50.000 involving utilisation of locally available natural resources and or human skills with individual credit requirements not exceeding Rs.25,000.

c) beneficiaries of IRDP.

d) Scheduled Castes and Scheduled Tribes.

e) beneficiaries under DRI scheme.

Agricultural financing

According to the ~anual~ of Instructions of Indian Bank that the credit needs of a farmer are met through broad categories of direct and indirect finance. In terms of RBI directives, the banks should achieve a target of 18 per cent of the net bank credit under agricultural advances (direct and indirect put together) with a stipulation that the agricultural lendings under the indirect category shall not exceed one-fourth of 18 per cent, that is, 4.5 per cent of net bank credit.7.4.1 Direct Finance Under this category, loans can be classified as (a) short term loan and (b)medium and Long term loan. Short term loan consist of short term production loan or crop loan. medium and long term loan includes activities like minor irrigation, fm landdevelopment, farm machanisation, plantation and horticulture, all activities allied to agriculture.

indirect Finance to Agriculture

Distribution of fertilisers, pesticides and seeds, loans to Electricity Boards, loans to fanners through Primary Agricultural Credit Societies, Farmers Service Socieities and Large sized Multi Purpose Societies are done under indirect finance.

Financing of Small Scale Industries (SSI)

The SSI sector4 covered wide range of enterprises with diverse characteristics. There are tiny or micro enterprises on the one hand and sophisticated, modem small scale units on the other hand. SSI undertakings are those which are engaged in the manufacture, processing or preservation of goods in which investment in plant and machinery (original cost ) does not exceed Rupees Three crores. Ancillary industrial undertakings are also classified as SSI not exceeding Rupees Three crores.

Indirect Finance to the Small Scale Industrial Sector

a) agencies involved in assisting the decentralised sector in the supply of inputs and marketing of output of artisans, village and cottage industries.

b) Government sponsored corporations/organisations providing funds to the weaker sections in the priority sector.c) Term financeiloans in the form of lines of credit made available to State Industrial Development Corporations /State Financial Corporations for financing SSIs.

d) Credit provided to Khadi and Village Industries Commission by consortium of banks for lending to viable khadi and village industrial units.

e) Subscription to bonds floated by SIDBI. State Financial Corporations. Small Industrial Development Corporations and National Small Industries Corporation.

f) Subscription to bonds issued by NABARD with the objective of financing exclusively for non-farm sector.

g) Loans for setting up of Industrial Estates.

Other borrowers

Other borrowers in the priority sector%ar : small road and water transport operators retail traders small business operators professional and self-employed persons State sponsored organisations for Scheduled Castes / Scheduled Tribes students for educational purposesHousing borrowers belonging to weaker sections taking pure consumption loans.1Small Road and Water Transport Operators

Advances to small road and water transport operators owning a fleet of vehicles not exceeding six, including the one proposed to be financed.

2 Retail Traders

Advances granted to (i) private retail traders dealing in essential commodities (FPS) and consumer co-operative stares and (ii) other private retail traders with credit limits not exceeding Rupees two lakhs (Advances to retail in fertilizers formpart of indirect finance for agriculture and those to retail traders and mineral oils under small business).

3 Small Business Operators

Small business would include individuals and firms managing a business enterpr~se established mainly for the purpose of providing any service other than professional services whose original cost price of the equipment used for the purpose of business does not exceed Rs.10 lakhs with working capital limits of Rupees Five lakhs or less. Further, the aggregate of Term loan and working capital limits sanctioned to a small business unit should not exceed Rs.10 lakhs. Advances for acquisition, construction, renovation of house-boats and other tourist accommodation are also included, Distribution of mineral oils shall be included under "srnall business".

4 Professional and Self-Employed Persons

Loans to professional and self-employed persons include loans for the purpose of purchasing equipment, repairing or renovating existing equipment andtor acquiring and repairing business premises or for purchasing tools andlor for working capital requirements to medical practitioners including dentists, chartered accountants,\ cost accountants, lawyers or solicitors, engineers, architects, surveyors, construction Contractors or management consultants or to a person trained in any other art or craft who holds either a degree or diploma from any institution established, aided or recognised by Government or to a person who is considered by the banks as technically qualified or skilled in the field in which he is employed. Advances to accredited journalists, cameramen , practising Company Secretaries, running health centre and also for setting up of beauty parlours are also considered under this category. Only such professionaland self-employed persons whose borrowings (limits) do not exceed Rupees Five lakhs (of which not more than Rupees one lakh should be for working capital requirements) arecovered under this category. However in the case of professionally qualified medical practitioners setting up practice In semi-urban and rural areas, the borrowing limits should not exceed Rupees 10 lakhs of wh~ch not more than Rupees two lakhs should be for working capital purposes.

.6 Educational Loans

Educational loans to students include only loans and advances granted to mdividuals for educational purposes and not those granted to Institutions and will include all advances granted by banks under special schemes, if any, introduced for the purpose

7 Housing Activities

(a) Direct finance

i. loans upto Rupees Three lakhs for construction of houses granted to all categories of borrowers except to the employees of the banks.

ii. loans upto Rs 50,0001- for repairs to damaged houses granted to all categories of borrowers except to the employees of the banks. (b) Indirect finance i. assistance given to any Governmental agency or to a non-governmental agency. approved by the National Housing Bank (NHB) for provision of refinance for the purpose of constructing houses where the loan component does not exceed Rupees Three lakhs per housing unit.ii. assistance given to any governmental agency or to a non-governmental agency. approved by NHB for provision of refinance for slum clearance and rehabilitation of slum dwellers where loan component does not exceed Rupees Three lakhs per housing unit.

iii. subscription to bonds issued by NHB and Housing and Urban Development Corporation exclusively for financing of housing as defined under the prioritysector. (for construction of houses where the loan component does not exceed Rupees Three lakhs per dwelling unit).

8 Borrowers Belonging to Weaker Sections Taking Pure Consumption Loans Pure consumption loans granted under the consumption credit scheme is included ,

.9 Funds by Sponsor Banks to Regional Rural BankThe amount of funds provided by sponsor banks to RRB is treated as PSL of the sponsor banks. 50 per cent of the amount of refinance granted to RRB is treated as indirect finance to agriculture while 40 per cent is treated as advance to weaker sections,

10 Loans to Self Help Groups I Non-Governmental Organisations Loans provided by banks to Self Help Groups (SHG) and Non- Governmental Organisations or small groups which are in the process of forming into SHGs.

Interest Rate Structure on PSL

The interest rates are administered by RBI and not subjected to market forces of supply and demand. The rates are different for different schemes. These interest rates also undergo periodic changes. The interest rate applicable to the PSL is concessional and related to the credit limits upto Rs.250001- . The rates range from 10 to 12 per cent in the case of short term agricultural loans. About 75 per cent of farm advances are in the credit limit upto Rs.25000. The rates charged on advances for units engaged in seed and other input distribution range between 1 1 ,S per cent and 14 per cent, rates on small scale industries range between 10 per cent and 16 per cent (over Rs.25 lakhs limits) and for other priority sector categories from 12.5 per cent to 15 per cent. The rate of interest is 10 per cent for the advances under Government sponsored credrt linked programmes such as IRDP, PMRY in specified backward areas and 12 per cent in other areas. New structure of lending rates for scheduled commercial banks linkinginterest rates to the size of the loans for all sectors has been introduced with effect from

RBI widens scope for priority sector lending, hikes MSME credit limit

The Reserve Bank today announced three changes to the priority sector lending norms and more than doubled the limit for MSME advances to the services sector to Rs 5 crore. In its annual policy statement, the RBI proposed an increase in the loan limit for micro and small enterprises in the services sector to Rs 5 crore per borrower from Rs 2 crore earlier.

Similarly, the regulator also suggested an increase in loan limit to Rs 5 crore from the earlier Rs 1 crore in case of lending to dealers/sellers of fertilisers, pesticides, seeds, cattle and poultry feeds, agricultural implements and other inputs which are classified as indirect finance to the agriculture sector.

The reclassifications of the priority sector lending (PSL) regime have been done based on the feedback received from stakeholders regarding enhancement in certain loan limits to be classified as PSL advances “within the broad contours of the priority sector architecture,” the apex bank said.

RBI Governor D Subbarao said detailed guidelines for the same will be issued shortly.

The policy statement also proposed to raise the limit on pledged loans to Rs 50 lakh from the current Rs 25 lakh as direct agricultural lending in the case of individual farmers and as indirect agriculture loans in the case of corporates, partnership firms and institutions engaged in agriculture and allied activities.

RBI changes rules on priority sector lending

The Reserve Bank of India (RBI) on Wednesday amended its guidelines on so-called

priority sector lending to encourage commercial banks to undertake more direct lending

to farmers.RBI has included loans to corporations including farmers’ producer companies of individual farmers and cooperatives of farmers directly engaged in agriculture and allied activities under direct lending. Such loans can be short-term crop loans, loans for pre-harvest and post-harvest activities, and credit to farmers for exporting their own farm produce. Also, bank loans to certain operations of micro and small enterprises, and loans to government agencies for construction of dwelling units and slum rehabilitation can also be termed priority sector, RBI said. Under priority sector norms, banks need to set5 State Sponsored Organisations For Scheduled Castes / Scheduled Tribes Advances sanctioned to state sponsored organisations for Scheduled Castes / Scheduled Tribes for the specific purpose of purchase and supply of inputs to and/or the marketing of the output of the beneficiaries of these organisations.

aside 40% of their total credit to agriculture, exports, microlending and other weak

economic sections. Failure to meet this target will force banks to invest in the Rural

Infrastructure Development Fund maintained by the National Bank for Agriculture and

Rural Development. The changes will come into effect from 20 July, RBI said in a

notification. “The central bank is in favour of more direct lending by banks to the

agriculture sector as farmers directly benefit from such lending and monitoring the end

use is easier,” a senior official with a state-run bank said on condition of anonymity.

Include export credit in priority sector lending for all banks

To give a boost to the export sector, an internal committee of the Reserve Bank of India (RBI) has recommended that export credit be included in priority sector lending for all banks. At present, only foreign banks are required to disburse 12% of their total credit under priority sector to export companies. For all other banks, export finance is outside the 40% priority sector mandate.The RBI formed a technical committee earlier this year to study the issues of exporters in relation to accessing bank finance, cost and procedural impediments and recommend ways to smooth credit flow to the sector. The committee's report was released by the central bank on Monday. The committee, chaired by executive director G Padmanabhan, has recommended that this inclusion be done for 3-5 years and, then, be reviewed. "Alternatively, the committee suggests inclusion of export credit as an eligible sector for deployment of 50% of the respective bank's shortfall in priority sector," the panel said. The RBI had increased the amount of outstanding export credit that banks can get refinanced to 50% recently. The committee has recommended the relaxation be kept for three years. Further, to make foreign exchange available to banks that extend export finance, the RBI has a swap facility wherein banks buy dollars from the central bank and sell the same at a forward date to support pre-shipment export credit. The scheme comes up for review in June and the committee has recommended its continuation for at least three years. Another recommendation is to remove foreign currency borrowings, exchange earners foreign currency and foreign currency non-resident deposits from the calculation of cash reserve ratio and statutory liquidity ratio for banks. This would reduce the cost burden for banks while lending to exporters, the committee said. The report says that the government can exempt foreign currency borrowings of exporters from withholding tax to reduce their cost.

LENDING TO PRIORITY SECTOR- Reseve bank of india

At a meeting of the National Credit Council held in July 1968, it was emphasised that commercial banks should increase their involvement in the financing of priority sectors, viz., agriculture and small scale industries. The description of the priority sectors was later formalised in 1972 on the basis of the report submitted by the Informal Study Group on Statistics relating to advances to the Priority Sectors constituted by the Reserve Bank in May 1971. On the basis of this report, the Reserve Bank prescribed a modified return for reporting priority sector advances and certain guidelines were issued in this connection indicating the scope of the items to be included under the various categories of priority sector. Although initially there was no specific target fixed in respect of priority sector lending, in November 1974 the banks were advised to raise the share of these sectors in their aggregate advances to the level of 33 1/3 per cent by March 1979. At a meeting of the Union Finance Minister with the Chief Executive Officers of public sector banks held in March 1980, it was agreed that banks should aim at raising the proportion of their advances to priority sectors to 40 per cent by March 1985. Subsequently, on the basis of the recommendations of the Working Group on the Modalities of Implementation of Priority Sector Lending and the Twenty Point Economic Programme by Banks, all commercial banks were advised to achieve the target of priority sector lending at 40 per cent of aggregate bank advances by 1985. Sub-targets were also specified for

lending to agriculture and the weaker sections within the priority sector. Since then, there have been several changes in the scope of priority sector lending and the targets and sub-targets applicable to various bank groups. On the basis of the recommendations of the Internal Working Group, set up in Reserve Bank to examine, review and recommend changes, if any, in the existing policy on priority sector lending including the segments constituting the priority sector, targets and sub-targets, etc. and the comments/suggestions received thereon from banks, financial institutions, public and the Indian Banks’ Association (IBA), it has been decided to include only those sectors that impact large segments of population & the weaker sections, and which are employment-intensive, as part of the priority sector.

I. CATEGORIES OF PRIORITY SECTOR

The broad categories of priority sector for all scheduled commercial banks are as under:

(i) Agriculture (Direct and Indirect finance): Direct finance to agriculture shall include short, medium and long term loans given for agriculture and allied activities directly to individual farmers, Self-Help Groups (SHGs) or Joint Liability Groups (JLGs) of individual farmers without limit and to others (such as corporates, partnership firms and institutions) up to Rs. 20 lakh, for taking up agriculture/allied activities.Indirect finance to agriculture shall include loans given for agriculture and allied activities as specified in Section I, appended.

(ii) Small Scale Industries (Direct and Indirect Finance): Direct finance to small scale industries (SSI) shall include all loans given to SSI units which are engaged in manufacture, processing or preservation of goods and whose investment in plant and machinery (original cost) excluding land and building does not exceed the amounts specified in Section I, appended. Indirect finance to SSI shall include finance to any person providing inputs to or marketing the output of artisans, village and cottage industries, handlooms and to cooperatives of producers in this sector.

(iii) Small Business / Service Enterprises shall include small business, retail trade, professional & self employed persons, small road & water transport operators and other service enterprises as per the definition given in Section I and other enterprises that are engaged in providing or rendering of services, and whose investment in equipment does not exceed the amount specified in Section I, appended.

(iv) Micro Credit : Provision of credit and other financial services and products of very small amounts not exceeding Rs. 50,000 per borrower to the poor in rural, semi-urban and urban areas, either directly or through a group mechanism, for enabling them to improve their living standards, will constitute micro credit.

(v) Education loans: Education loans include loans and advances granted to only individuals for educational purposes up to Rs. 10 lakh for studies in India and Rs. 20 lakh for studies abroad, and do not include those granted to institutions;

(vi) Housing loans: Loans up to Rs. 15 lakh for construction of houses by individuals, (excluding loans granted by banks to their own employees) and loans given for repairs to the damaged houses of individuals up to Rs.1 lakh in rural and semi-urban areas and up to Rs.2 lakh in urban areas.

(2) Investments by banks in securitised assets, representing loans to agriculture (direct or indirect), small scale industries (direct or indirect) and housing, shall be eligible for classification under respective categories of priority sector (direct or indirect) depending on the underlying assets, provided the securitised assets are originated by banks and financial institutions and fulfil the Reserve Bank of India guidelines on securitisation(3) The targets and sub-targets under priority sector lending would be linked to Adjusted Net Bank Credit (Net Bank Credit plus investments made by banks in non-SLR bonds held in HTM category) or Credit Equivalent of Off-Balance Sheet Exposures, whichever is higher, as on March 31 of the previous year.

(4) In order to encourage banks to increasingly lend directly to the priority sector borrowers, the banks' deposits placed with NABARD/SIDBI on account of non-achievement of priority sector lending targets would not be eligible for classification as indirect finance to agriculture/SSI, as the case may be.

II. TARGETS/SUB-TARGETS The targets and sub-targets set under priority sector lending for domestic and foreign banks operating in India are furnished below

Domestic commercial banks Foreign banksTotal Priority Sector Advances

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

32 per cent of ANBC or credit equivalent amount of Off-Balance Sheet Exposure, whichever is higher.

Total agricultural advance

18 per cent of ANBC or credit equivalent amount 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 performance under 18 per cent target. However, all agricultural advances under the categories 'direct' and 'indirect' will be reckoned in computing performance under the overall priority sector target of 40 per cent of ANBC or credit equivalent

No target

amount of Off-Balance Sheet Exposure, whichever is higher

SSI advances Advances to SSI sector will be reckoned in computing performance under the overall priority sector target of 40 per cent of ANBC or credit equivalent amount of Off-Balance Sheet Exposure, whichever is higher.

10 per cent of ANBC or credit equivalent amount of Off-Balance Sheet Exposure, whichever is Higher

Micro enterprises within SSI

(i) 40 per cent of total SSI advances should go to units having investment in plant and machinery up to Rs 5 lakh, (ii) 20 per cent of total SSI advances should go to units with investment in plant & machinery between Rs 5 lakh and Rs. 25 lakh (Thus, 60 per cent of SSI advances should go to the micro enterprises).

Same as for domestic banks.

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

12 per cent of ANBC or credit equivalent amount of Off-Balance Sheet Exposure, whichever is higher.

Advances to weaker sections

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

No target.

Differential Rate of Interest Scheme

1 per cent of total advances outstanding as at the end of the previous year. It should be ensured that not less than 40 per cent of the total advances granted under DRI scheme go to scheduled caste/scheduled tribes. At least two third of DRI advances should be granted through rural and semi-urban branches.

No target.

[ANBC or credit equivalent of Off-Balance Sheet Exposures denotes the outstanding as on March 31 of the previous year. For this purpose, outstanding FCNR (B) and NRNR deposits balances will no longer be deducted for computation of NBC for priority sector lending purposes. For the purpose of priority sector lending, Adjusted NBC (ANBC) denotes NBC plus investments made by banks in non-SLR bonds held in HTM category.] The detailed guidelines in this regard are given hereundeSECTION I

1. AGRICULTURE DIRECT FINANCE 1 Finance to individual Farmers [including Self Help Groups (SHGs) or Joint Liability Groups (JLGs), i.e. groups of individual farmers] for Agriculture and Allied Activities 1 Short-term loans for raising crops, i.e. for crop loans. This will include traditional/nontraditional plantations and horticulture.

2 Advances up to Rs. 10 lakh against pledge/hypothecation of agricultural produce (including warehouse receipts) for a period not exceeding 12 months, irrespective of whether the farmers were given crop loans for raising the produce or not.

.3 Working capital and term loans for financing production and investment requirements for agriculture and allied activities.

4 Loans to small and marginal farmers for purchase of land for agricultural purposes.

.5 Loans to distressed farmers indebted to non-institutional lenders, against appropriate collateral or group security.

.6 Loans granted for pre-harvest and post-harvest activities such as spraying, weeding, harvesting, grading, sorting, processing and transporting undertaken by rural and semiurban households or groups/cooperatives of rural and semi-urban households. 1.2 Finance to others up to an aggregate amount of Rs. 20 lakh per borrower for the purposes

INDIRECT FINANCE Finance for Agriculture and Allied Activities

.1 Loans to entities covered under 1.2 above in excess of Rs. 20 lakh in aggregate per borrower for agriculture and allied activities. In such cases, the entire amount outstanding shall be treated as indirect finance for agriculture.

.2 Loans to food and agro-based processing units with investments in plant and machinery up to Rs. 10 crore, undertaken by other than rural and semi-urban households.

.3 Loans to Non-Banking Financial Companies (NBFCs) for on lending to individual farmers.

.4 (i) Credit for purchase and distribution of fertilisers, pesticides, seeds, etc. (ii) Loans up to Rs. 40 lakh granted for purchase and distribution of inputs for the alliedactivities such as cattle feed, poultry feed, etc.

.5 Finance for setting up of Agriclinics and Agribusiness Centres.

.6 Finance for hire-purchase schemes for distribution of agricultural machinery and implements. .7 Loans to farmers through Primary Agricultural Credit Societies (PACS), Farmers’ ServiceSocieties (FSS) and Large-sized Adivasi Multi Purpose Societies (LAMPS).

8 Loans to cooperative societies of farmers for disposing of the produce of members.

.9 Financing the farmers indirectly through the co-operative system (otherwise than by subscription to bonds and debenture issues) provided a certificate from the State Cooperative Bank/State Cooperative Agriculture and Rural Development Bank (SCARDB), as the case may be, is produced, certifying the end use of such loans.

10 Investments by banks in special bonds issued by NABARD with the objective of financingexclusively agriculture/allied activities (not eligible for classification under priority sector lending with effect from April 1, 2007) .11 Loans for construction and running of storage facilities (warehouse, market yards, godowns, and silos), including cold storage units designed to store agriculture produce/products, irrespective of their location. If the storage unit is registered as SSI unit, the loans granted to such units may be classified under advances to SSI, provided the investment in plant and machinery is within the stipulated ceiling..12 Advances to Customs Service Units managed by individuals, institutions or organizations who maintain a fleet of tractors, bulldozers, well-boring equipment, threshers, combines, etc., and undertake work for farmers on contract basis.

13 Finance extended to dealers in drip irrigation/sprinkler irrigation system/agricultural machinery, irrespective of their location, subject to the following conditions: (a) The dealer should be dealing exclusively in such items or if dealing in other products, should be maintaining separate and distinct records in respect of such items. (b) A ceiling of up to Rs. 30 lakh per dealer should be observed.

.14 Loans to Arthias (commission agents in rural/semi-urban areas functioning in markets/mandies) for extending credit to farmers, for supply of inputs as also for buying the output from the individual farmers/ SHGs/ JLGs.

15 Fifty per cent of the credit outstanding under loans for general purposes under General Credit Cards (GCC). 2 SMALL SCALE INDUSTRIES DIRECT FINANCE 2.1 Direct Finance in the small scale industry sector will include credit to: 1 Small Scale Industries Units engaged in the manufacture, processing or preservation of goods and whose investment in plant and machinery (original cost) excluding land and building does not exceed Rs. 5 crore.

2 Micro Enterprises Small scale units whose investment in plant and machinery (original cost) excluding land and building is up to Rs. 25 lakh, irrespective of the location of the unit, are treated as Micro Enterprises.

3 KVI Sector All advances granted to units in the KVI sector, irrespective of their size of operations, location and amount of original investment in plant and machinery. Such advances will be eligible for consideration under the sub-target (60 per cent) of the SSI segment within the priority sector.

INDIRECT FINANCE2.2 Indirect finance in the small-scale industrial sector will include credit to:

1 Persons involved in assisting the decentralised sector in the supply of inputs to and marketing of outputs of artisans, village and cottage industries.

2 Advances to cooperatives of producers in the decentralised sector viz. artisans village and cottage industries.

3 Subscription to bonds issued by NABARD with the objective of financing exclusively nonfarm sector (not eligible for classification under priority sector lending with effect from April 1, 2007). 4 Loans granted by banks to NBFCs for on lending to SSI sector.

3. SMALL BUSINESS / SERVICE ENTERPRISES

1 Loans granted to small business and service enterprises such as, Small Road and Water TransportOperators, Small Business, Professional & Self Employed Persons, etc. engaged in providing/rendering of services (which are industry or non-industry related), and whose investment in equipment (original cost and excluding land and building) does not exceed Rs. 2 crore. (i) Advances granted to retail traders dealing in essential commodities (fair price shops), consumer co-operative stores, and; (ii) Advances granted to private retail traders with credit limits not exceeding Rs. 20 lakh.

3.3 Loans to NBFCs for the purpose of on-lending to various categories of small business and service enterprises.

4. MICRO CREDIT

1 Loans of very small amount not exceeding Rs. 50,000 per borrower, provided by banks to the poor in rural, semi-urban and urban areas, either directly or through a group mechanism, forenabling them to improve their living standards.

2 Loans to urban poor indebted to informal sector

Loans to distressed urban poor to prepay their debt to lenders in the informal sector would be eligible for classification under priority sector. Urban poor for this purpose may include those families in the urban areas who are below the poverty line. Such loans to urban poor may be classified under weaker sections within the priority sector.

5. STATE SPONSORED ORGANIZATIONS FOR SCHEDULED CASTES/SCHEDULED TRIBES 8 Advances sanctioned to State Sponsored Organisations for Scheduled Castes/ Scheduled Tribes for the specific purpose of purchase and supply of inputs to and/or the marketing of the outputs of the beneficiaries of these organisations.

6. EDUCATION Educational loans should include only loans and advances granted to individuals for educational purposes up to Rs. 10 lakh for studies in India and Rs. 20 lakh for studies abroad, and not those granted to institutions.

7. HOUSING 1 Loans up to Rs. 15 lakh, irrespective of location, for construction of houses by individuals,excluding loans granted by banks to their own employees.

2 Loans given for repairs to the damaged houses of individuals up to Rs. 1 lakh in rural andsemi-urban areas and up to Rs. 2 lakh in urban areas.

3 Assistance up to Rs. 1.25 lakh per housing unit given to any governmental agency/ nongovernmental agency (approved by the NHB for the purpose of refinance) for construction/ reconstruction of houses or for slum clearance and rehabilitation of slum dwellers.

8. Weaker SectionsThe weaker sections under priority sector shall include the following:(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 Liberation and Rehabilitation of Scavangers (SLRS). (h) Advances to Self Help Groups. (i) Loans to distressed urban/rural poor to prepay their debt to non-institutional lenders, against appropriate collateral or group security.

8. Export Credit This category will form part of priority sector for foreign banks only. SECTION II

PENALTIES FOR NON-ACHIEVEMENT OF PRIORITY SECTOR LENDING TARGET / SUBTARGETS 1. Domestic scheduled commercial banks – Contribution by banks to Rural Infrastructure Development Fund (RIDF): 9

.1 Domestic scheduled commercial banks having shortfall in lending to priority sector target (40per cent of ANBC or credit equivalent amount of Off-Balance Sheet Exposure, whichever is higher) and / or agriculture target (18 per cent of ANBC or credit equivalent amount of OffBalance Sheet Exposure, whichever is higher) shall be allocated amounts for contribution to the Rural Infrastructure Development Fund (RIDF) established with NABARD. The concerned banks will be called upon by NABARD, on receiving demands from various State Governments, to contribute to RIDF.

.2 The corpus of a particular tranche of RIDF is decided by Government of India every year. Fifty per cent of the corpus shall be allocated among the domestic commercial banks having shortfall in lending to priority sector target of 40 per cent of ANBC or credit equivalent amount of Off-Balance Sheet Exposure, whichever is higher, on a pro-rata basis, and fifty per cent of the corpus shall be allocated among the banks having shortfall in lending to agriculture target of 18 per cent of ANBC or credit equivalent amount of Off-Balance Sheet Exposure, whichever is higher, on a pro-rata basis. The amount of contribution by banks to a particular tranche of RIDF will be decided in the beginning of the financial year..3 The interest rates on banks’ contribution to RIDF shall be fixed by Reserve Bank of India from time to time. 1.4 Details regarding operationalisation of the RIDF such as the amounts to be deposited bybanks, interest rates on deposits, period of deposits etc., will be communicated to the concerned banks separately by August of each year to enable them to plan their deployment of funds.

2. Foreign Banks – Deposit by Foreign Banks with SIDBI

1 The foreign banks having shortfall in lending to stipulated priority sector target/sub-targets will be required to contribute to Small Enterprises Development Fund (SEDF) to be set up bySmall Industries Development Bank of India (SIDBI).

2 The corpus of SEDF shall be decided by Reserve Bank of India on a year to year basis. Thetenor of the deposits shall be for a period of three years or as decided by Reserve Bank from time to time. Fifty per cent of the corpus shall be contributed by foreign banks having shortfall in lending to priority sector target of 32 per cent of ANBC or credit equivalent amount of OffBalance Sheet Exposure, whichever is higher, on a pro-rata basis, and fifty per cent of the corpus shall be contributed by foreign banks having aggregate shortfall in lending to SSI sector and export sector of 10 per cent and 12 per cent respectively, of ANBC or credit equivalent amount of Off-Balance Sheet Exposure, whichever is higher, on a pro-rata basis.

.3 The concerned foreign banks will be called upon by SIDBI, as and when required by them, to contribute to SEDF, after giving one month’s notice.

4 The interest rates on foreign banks’ contribution to SEDF shall be fixed by the Reserve Bank

COMMON GUIDELINES FOR PRIORITY SECTOR ADVANCES1 Banks should follow the following common guidelines prescribed by the Reserve Bank for all categories of advances under the priority sector.

2 PROCESSING OF APPLICATIONS 10.1 Completion of Application FormsIn case of Government sponsored schemes such as SGSY, the concerned project authorities like DRDAs, DICs, etc. should arrange for completion of application forms received from borrowers. In other areas, the bank staff should help the borrowers for this purpose.

.2 Issue of Acknowledgement of Loan Applications

Banks should give acknowledgement for loan applications received from weaker sections. Towards this purpose, it may be ensured that all loan application forms have perforated portion for acknowledgement to be completed and issued by the receiving branch. Each branch may affix on the main application form as well as the corresponding portion for acknowledgement, arunning serial number. While using the existing stock of application forms which do not have a perforated portion for acknowledgement is separately given, care should be taken to ensure thatthe serial number given on the acknowledgement is also recorded on the main application. Theloan applications should have a check list of documents required for guidance of the prospectiveborrowers.

.3 Disposal of Applications

(i) All loan applications up to a credit limit of Rs. 25,000/- should be disposed of within a fortnight and those for over Rs. 25,000/-, within 4 weeks. (ii) All loan applications for SSI up to a credit limit of Rs. 25,000/- should be disposed of within 2 weeks and those up to Rs. 5 lakh within 4 weeks, provided the loan applications are complete inall respects and are accompanied by a 'check list'.

.4 Rejection of ProposalsBranch Managers may reject applications (except in respect of SC/ST) provided the cases ofrejection are verified subsequently by the Divisional/Regional Managers. In the case of proposals from SC/ST, rejection should be at a level higher than that of Branch Manager.

.5 Register of Rejected Applications

A register should be maintained at the branch, wherein the date of receipt, sanction/rejection/disbursement with reasons therefor, etc., should be recorded. The register should be made available to all inspecting agencies.3 MODE OF DISBURSEMENT OF LOAN

With a view to providing farmers wider choice as also eliminating undesirable practices, banksmay disburse all loans for agricultural purposes in cash which will facilitate dealer choice to borrowers and foster an environment of trust. However, banks may continue the practice of obtaining receipts from borrowers.

4 REPAYMENT SCHEDULE1 Repayment programme should be fixed taking into account the sustenance requirements, surplus generating capacity, the break-even point, the life of the asset, etc., and not in an "ad hoc" manner. In respect of composite loans, repayment schedule may be fixed for term loancomponent only. 11.2 As the repaying capacity of the people affected by natural calamities gets severely impaired due to the damage to the economic pursuits and loss of economic assets, the benefits such asrestructuring of existing loans, etc. as envisaged under our circular RPCD.CO.PLFS.NO. BC 16/05.04.02/2006-07 dated August 9, 2006 may be extended to the affected borrowers.

5 RATES OF INTEREST .1 The rates of interest on various categories of priority sector advances will be as per RBIdirectives issued from time to time.

.2 (a) In respect of direct agricultural advances, banks should not compound the interest in the case of current dues, i.e. crop loans and instalments not fallen due in respect of term loans, as the agriculturists do not have any regular source of income other than sale proceeds of their crops. (b) When crop loans or instalments under term loans become overdue, banks can add interestto the principal.(c) Where the default is due to genuine reasons banks should extend the period of loan or reschedule the instalments under term loan. Once such a relief has been extended, the overdues become current dues and banks should not compound interest.(d) Banks should charge interest on agricultural advances in respect of long duration crops, at annual rests instead of quarterly or longer rests, and could compound the interest, if the loan/instalment becomes overdue.

6 PENAL INTEREST

.1 The issue of charging penal interests that should be levied for reasons such as default in repayment, non-submission of financial statements, etc. has been left to the Board of each bank. Banks have been advised to formulate policy for charging such penal interest with the approval of their Boards, to be governed by well accepted principles of transparency, fairness, incentive to service the debt and due regard to difficulties of customers

.2 No penal interest should be charged by banks for loans under priority sector up to Rs 25,000 as hitherto. However, banks will be free to levy penal interest for loans exceeding Rs 25,000, in terms of the above guidelines.

7. SERVICE CHARGES / INSPECTION CHARGES

.1 No service charges/inspection charges should be levied on priority sector loans up to Rs.25,000/-.

.2 For loans above Rs. 25,000/- banks will be free to prescribe service charges with the priorapproval of their Boards, in terms of circular No. DBOD.Dir.BC.86/03.01.00/99-2000 dated September 7, 1999.

8. INSURANCE AGAINST FIRE AND OTHER RISKS

1 Banks may waive insurance of assets financed by bank credit in the following cases:No. Category Type of Risk Type of Assets(a) All categories of

priority sector advances up to and inclusive of Rs. 10,000/-

Fire & other Risks

Equipment and current Assets

(b) Advances to SSI sector up to and inclusive of Rs. 25,000/- by way of - • Composite loans to artisans, village and cottage industries Fire Equipment and current assets • All term loans Fire Equipment (b) • Working capital where these are against non-hazardous goods

FireFireFire

Equipment and current AssetsEquipmentCurrent Assets

2 Where, however, insurance of vehicle or machinery or other equipment/assets is compulsory under the provisions of any law or where such a requirement is stipulated in the refinance scheme of any refinancing agency or as part of a Government-sponsored programmes such as SGSY, insurance should not be waived even if the relative credit facility does not exceed Rs. 10,000/- or Rs. 25,000/-, as the case may be.

9. PHOTOGRAPHS OF BORROWERS While there is no objection to taking photographs of the borrowers for purposes of identification, banks themselves should make arrangements for the photographs and also bear the cost of photographs of borrowers falling in the category of Weaker Sections. It should also be ensured that the procedure does not involve any delay in loan disbursement.

10 DISCRETIONARY POWERS All Branch Managers of banks should be vested with discretionary powers to sanction proposalsfrom weaker sections without reference to any higher authority. If there are difficulties in extending such discretionary powers to all the Branch Managers, such powers should exist at least at the district level and arrangements be ensured that credit proposals on weaker sections are cleared promptly.

11 MACHINERY TO LOOK INTO COMPLAINTS There should be machinery at the regional offices to entertain complaints from the borrowers ifthe branches do not follow these guidelines, and to verify periodically that these guidelines are scrupulously implemented by the branches.

12 AMENDMENTS These guidelines are subject to any instructions that may be issued by the RBI from time to time.

Priority Sector LendingNews »  LATEST  Kotak Mahindra Bank revises its base rate to 10%Kotak Mahindra Bank has revised the base rate upwards from 9.75 percent p.a. to 10 percent p.a. with effect from August 13, 2013. The Bank has also revised its Benchmark Prime Lending Rate (BPLR) upwards by 25 basis points with effect from August 13, 2013.

RBI relaxes priority loan eligibility norm for MFIs on lendingTop Pension Plans Invest 50,000 p.a & Get 63 Lacs Compare All Plans

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Reserve bank has made the bank credit for onlending by Micro Finance Institutions (MFIs) eligible for categorisation as priority sector lending if at least 70 per cent ( it was 75 per cent earlier) of loans given by MFIs is for income generating activity.In a notification, RBI said, "...it has been decided that bank credit to MFIs for onlending will now be eligible for categorisation as priority sector advance if aggregate amount of loan, extended for income generating activity, is not less than 70 per cent of the total loans given by MFI."Lending towards agriculture, micro and small enterprises, education, housing, and export credit are termed as priority sector lending.As per RBI norms, domestic banks are advised to achieve the target of priority sector lending at 40 per cent.However, foreign banks with 20 and above branches in the country are required to be at par with domestic banks for priority sector targets in a phased manner over a maximum period of 5 years beginning April 1, 2013 i.e., till March 31, 2018.Topics:rbi

`Bank lending to NBFCs slows to a trickle

Dinesh Unnikrishnan MUMBAI, Aug 12, 2013 (Mint - McClatchy-Tribune Information Services via COMTEX) -- Indian banks' lending to non-banking finance companies (NBFCs), perceived as a high-risk sector, has virtually come to a halt due to the combined impact of regulatory tightening by the Reserve Bank of India (RBI) and slowing business.Growth in bank lending to NBFCs dropped to 1.9% in the 12 months ended June 2013 compared with 44% in the same period last year, according to RBI data. In absolute terms, bank loan outstanding to NBFCs stood at Rs.2.58 trillion, marginally higher than Rs.2.54 trillion in the year-ago period.The decline in bank lending is more evident in the three months ended June, when banks lent just Rs.20 crore to

NBFCs, registering a growth of 0.8%, against a 11.4% growth in the year-ago period.Banks have turned risk-averse to the sector after the regulator tightened rules for such companies to curtail their rapid growth.RBI first began choking bank funding to NBFCs in May 2011 by removing the so-called priority sector tag for bank loans to NBFCs, except for those loans given to companies operating in specific segments such as microfinance. This substantially raised the cost of funds to NBFCs.Priority sector lending refers to banks' mandatory lending to agriculture, exports and other weaker sections. Banks are required to lend 40% of their loans to such segments."Banks have been highly cautious due to the heightened concentration risks, as suggested by the high growth, in the NBFC sector. Concentration risk to low-rated NBFCs or weak NBFCs created concern," said Prakash Agarwal, associate director, banks, India Ratings, formerly known as Fitch Ratings India.As the next step, RBI tightened norms on the securitization deals, or the process of pooling loan assets marketable securities, by prohibiting banks from taking any credit enhancements from these companies that originate the loans in bilateral transactions. Removal of this provision made such transactions unattractive to banks as they got exposed to the full credit risk.The sharp decline in bank lending to non-banks was also partially due to the latter's shift to the bond market to raise funds as banks have been charging high rates, experts said. Banks have been reluctant to lower lending rates despite the apex bank cutting its key lending rate by 1.25 percentage points in three rounds since April 2012, experts said.This prompted NBFCs to tap the non-convertible debenture (NCD) market to raise funds, where the rates were relatively cheaper."It made sense to companies to tap the NCD market to raise money. More so because banks were unwilling to lower rates," said Santosh Singh, analyst at Espirito Santo Securities Pvt. Ltd, a brokerage.But this scenario has changed since mid-July, when RBI rolled out a set of liquidity tightening measures to shore up a weak rupee. In mid-July, the central bank capped the banks' borrowing from its overnight borrowing window and increased the daily cash reserve balance requirement for banks.Subsequently, the short-term rates shot up by 2-3 percentage points, thus making bond issuances unattractive for NBFCs."They have been seeking other instruments to raise

funds. Now they may come back to banks," said R.K. Bansal, executive director of IDBI Bank Ltd, a state-run lender.Shooting costsThe cost of funds for NBFCs is likely to go up as banks have begun increasing their loan rates, analysts say. Private lenders Yes Bank Ltd and HDFC Bank Ltd have raised their base rates, or minimum lending rates, and others are expected to follow suit.RBI tightened on the NCD issuances as well. In June, RBI mandated a minimum waiting period of six months between two private placements from an NBFC, observing that these firms have lately been raising resources from the retail customers "on a large scale, through private placement, especially by issue of debentures". RBI also wanted to restrict the maximum number of subscribers to 49, but put the implementation of the rule on hold after feedback from the industry.Another contributing factor to the drop in bank lending to NBFCs is RBI's tightening of rules for those NBFCs that lend against gold. To rein in the aggressive growth of gold loan-focused NBFCs, RBI first in February 2011 removed the priority sector status it accorded to loans advanced by commercial banks to NBFCs for further lending the money against gold pledged by borrowers. Later, in March 2012, RBI tightened norms by capping the amount they can lend against gold, or the loan-to-value (LTV) ratio, at 60%, besides raising the capital requirement from 10% to 12% by April 2014.It also asked banks to reduce exposure to NBFCs where gold loans make up 50% or more of total financial assets by reducing the regulatory exposure to a single company to 7.5% of their capital fund, from 10%.Regulatory tightening, coupled with a sharp decline in the value of gold prices early this year, severely impacted the business of gold loan NBFCs, pushing down their demand for banks loans, said George Alexander Muthoot, managing director, Muthoot Finance Ltd, India's largest gold loan company."There is no growth in business, hence there was no need to access bank loans," Muthoot said. For the quarter ended June, Muthoot Finance logged a 21% decline in its net profit at Rs.246.11 crore as compared with the year-ago period."Looking at the growth rate on the retail side, banks would definitely be reviewing the asset quality and size of NBFCs for deciding the quantum of support," said Ramesh Iyer, managing director of Mahindra and Mahindra Financial Services Ltd, an NBFC. "NBFCs will also look at multiple sources for funding to de-risk their liability side."

A controversial state law by Andhra Pradesh government in late 2010 pushed NBFC-microfinance institutions to a crisis, prompting banks to significantly reduce lending to the sector, especially those having significant operations in the southern state, where most of the microlenders had to recast their loans.___ (c)2013 the Mint (New Delhi) Visit the Mint (New Delhi) at www.livemint.comDistributed by MCT Information Services...

Chief Minister Siddaramaiah urged banks to formulate suitable growth strategies to support priority sectors of the government.Inaugurating a State-level Bankers’ Committee’s convention at Vidhana Soudha here on Saturday, he said banks should not be conservative.They should extend credit facilities to priority areas like primary education, agriculture and SC/STs as a social commitment to ensure that the targets are surpassed by a substantial margin, he added.According to him, Karnataka is a cradle of five public sector banks, but the coverage has not resulted in an increased flow of credit.“Tamil Nadu and Andhra Pradesh have maintained a credit deposit ratio of 117 per cent as against 75 per cent of the state,” he said.He added that the State’s credit deposit has managed to cross 100 per cent as against Tamil Nadu’s 132 per cent and Andhra Pradesh’s 173 per cent.Siddaramaiah said the interest subsidy claims have been settled at Rs 31.95 crore by the Agriculture Department and advised banks to be pro-active to benefit maximum farmers.He observed that the progress in issuing Kissan Credit cards is as low as 7.98 lakh cards in 2012-13 as against the target of 11 lakh cards.Regretting the low credit flow to the education sector by the State’s banks at Rs 4,263 crore, he said it was lower than Tamil Nadu and Kerala with Rs 11,894 crore and Rs 7,210 crore respectively.Expressing concern over the negative growth in the housing loan segment, he said the government is looking forward to partner with banks.Siddaramaiah said the Karnataka State Rural Livelihood Promotion Society, set up under the National Rural Livelihood Mission, is encouraging self-help groups (SHGs) with seven per cent aggregated loan amount up to Rs 3 lakh.He said the State has been identified for additional interest subvention reducing effective rate of four per cent in prompt repayment of loans and wants to extend it to 26 districts.He said Karnataka disbursed Rs 5,181 crore to 4 lakh SHGs whereas Andhra Pradesh, with more than 10 lakh SHGs, gave out Rs15,000 crore.  ‘Lend to Students’Regional Director of Reserve Bank of India (RBI) Uma Shankar urged banks to set aside apprehensions and speed up the process of lending to people who need education loans to overcome lower achievement rates.She said the banks are scared to lend loans to students and their parents.

“When you have Rs 2,000 crore loss in your books, why hesitate to risk Rs 5 lakh? How many such cases you have?” she asked.She advised the banks to go slow and not jeopardise MSMEs.She said the recovery in agriculture sector is 40 per cent and on tractors is at 30 per cent.Uma Shankar said the banks need to help small-loan customers as they do in case of corporates.Chief Secretary S V Ranganath also stressed the need to focus on lending priority sector.Banks Told to Use KannadaChief Minister Siddaramaiah has directed banks to practice three language policy and use Kannada in their day-to-day activities.He was addressing a State-level Bankers Committee Convention here on Saturday.He said that the bank should print challans, pass books, loan applications, account opening forms and fixed deposit certificates in Kannada. Besides this, the banks should also use Kannada in their normal banking transactions, he noted.He reiterated that the State government is firm on taking steps for implementing Kannada in all official activities.He said that the government is committed to protect and encourage art and culture.State government’s Chief Secretary S V Ranganath was present in the conference.

Punjab starts ranking banks on priority lendingBy: Parshant Krar CHANDIGARH: HDFC Bank has grabbed the top position in a priority sector lending rating introduced by the Punjab government, followed by Malwa Gramin Bank, Allahabad Bank and State Bank of India. The state has introduced a rating ... Commodities Buzz: Banks Increasingly Getting Exposed To Agri Business Risks Says NCDEXWith increased focus on priority sector lending, banks are increasingly getting exposed to agri business risks; arising from volatility in commodity prices, according to a latest press release from the National Commodities and Derivatives Exchange ... India Infoline, 1 week ago

Business Standard India

IDBI Bank to draw up 5-year business road mapBank has a lot of ground to cover in priority-sector lending email this article Subject line: Your Email: Send me a copy: Recipients Id: Type address separated by commas Enter the characters shown in the image. Send Noting the missed opportunities in lending ... Business Standard, 4 weeks agoIndia Inc brace up for steep fall in demand, investment  Business Standard India, 2 weeks agoRupee stability a top priority  Smart Investor, 2 weeks agoIndia Inc braces for steep fall in demand  Business Standard India, 2 weeks ago

RBI should declare export credit as a priority sector for lending: FIEO chiefIndia's trade deficit narrowed to USD 12.2 billion in June from USD 20.1 billion in May. This was due to lower gold imports and seasonal factors. The government and RBI had imposed restrictions on import of gold that led to sharp decline. Commenting on the ... Myiris, 1 month ago

One India

RBI relaxes priority loan eligibility norm for MFIs on lendingReserve bank has made the bank credit for onlending by Micro Finance Institutions (MFIs) eligible for categorisation as priority sector lending if at least 70 per cent ( it was 75 per cent earlier) of loans given by MFIs is for income generating activity. In ... One India, 1 month agoRBI eases priority loan eligibility rules for MFIs onlending  India Infoline, 1 month agoIn-principle nod for new bank licences will be valid longer  Business Line, 2 months ago

Business Line

AP hikes priority sector lending to Rs 99,894 crAndhra Pradesh has proposed to disburse Rs 99,894 crore loans during the current financial year. According to the State Credit Plan 2013-14 released by Chief Minister N. Kiran Kumar Reddy at the State Level Bankers Committee (SLBC) meeting here on Tuesday, ... Business Line, 2 months ago

Livemint.com

Bank lending to NBFCs slows to a trickleIndian banks' lending to non-banking finance companies (NBFCs), perceived as a high-risk sector, has virtually come to a halt due to the combined impact of regulatory tightening by the Reserve Bank of India (RBI) and slowing business. Growth in ... Individual.com, 4 days ago

New Indian Express

Give priority to primary sectors, CM tells banksChairman of Syndicate Bank, Sudhir Kumar Jain, welcoming CM Siddaramaiah to the State-level Bankers Committee Meeting in Bangalore on Saturday. Chief Secretary SV Ranganath looks on | Nagesh Polali Chief Minister Siddaramaiah urged banks to ... New Indian Express, 2 weeks agoKarnataka CM asks public sector banks to increase credit flow  Times of India, 2 weeks agoSiddaramaiah asks banks to lend more to education, housing sectors  The Hindu, 2 weeks agoSiddaramaiah urges banks to up credit flow  Smart Investor, 2 weeks agoMore from:  News Track India, SME Times...and 15 other sources

Banks seek priority sector tag for loans to affordable builders- Advertise Here [300 W x 600 H pixels] - The Reserve Bank of India (RBI) is examining a plea by banks to recognise loans given to builders/developers of affordable housing projects as priority sector lending. Strong demand for housing will have a ... ASAPP, 2 weeks agoPriority sector status sought for credit to affordable home developers  ASAPP, 3 weeks ago

Rediff.com

Why India must support start-upsWe need to make start-ups, instead of small businesses, part of the priority sector, says Shubhashis Gangopadhyay. I heard an interesting presentation at a recent conference.* The paper on which the presentation was based starts with what the author describes as a myth that we religiously believe in and, indeed, propagate to others.  This is a myth about start-ups. Start-ups, or new businesses, have no record and, hence, find it hard to obtain credit from formal institutions like ... Rediff.com, 1 month agoFunding crunch hurting Bahraini start-ups  Trade Arabia, 3 weeks agoFunding crunch hurting Bahraini entrepreneurs  Individual.com, 3 weeks ago

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location Copyright © 2013 Rediff.com India Limited. All rights Reserved.Disclaimer | Privacy policy | Feedback | Terms of useAP plans to disburse Rs 99,894 cr loans this fiscalG. NAGA SRIDHARSHARE  ·   COMMENT   ·   PRINT   ·   T+  

Business LineChief Minister N. Kiran Kumar Reddy (second left) releasing the State Credit Plan 2013-14 at the State-Level Bankers' Committee meeting in Hyderabad on Tuesday. From left are B. A. Prabhakar, Chairman and Managing Director of Andhra Bank and Chairman of SLBC; Anam Ramnarayan Reddy, Minister for Finance, and P. K. Mohanty, Chief Secretary. — P.V. Sivakumar

A file photo of Andhra Pradesh Chief Minister, N. Kiran Kumar Reddy.Aviva i-Life Term Plan - Pay Only Rs.16*/day and Get 1 Crore Life Cover+ Tax Benefits. Buy Now!HYDERABAD, JUNE 4:  Andhra Pradesh has proposed to disburse Rs 99,894 crore loans during the current financial year.According to the State Credit Plan 2013-14 released by Chief Minister N. Kiran Kumar Reddy at the State Level Banker’s Committee (SLBC) meeting here on Tuesday, the proposed outlay was 21.57 per cent higher than last year.Farm sector lending was proposed at Rs 67,224 crore which was 27 per cent higher than the last year’s outlay of Rs 52,972 crore.Speaking on the occasion, B.A. Prabhakar, Chairman of Andhra Bank and President of SLBC, said banks had achieved 21 per cent higher disbursals than the target during last year. The total disbursals stood at Rs 99,534 crore against the target of Rs 82,167 crore.While disbursals to agriculture and medium and small enterprises exceeded the target, the achievement under other priority sectors was not satisfactory.“Banks need to take steps for improving the performance under this segment,’’ he said.naga.gunturi@thehindu.co.in(This article was published on June 4, 2013)Keywords: Andhra Pradesh Credit Plan, Andhra Pradesh loan disbursals, AP loans for priority sector, RELATEDNEWSRBI widens scope for priority sector lending, hikes MSME credit limitPriority sector lending up Rs 9,300-cr in AP Credit Plan

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2Add to My PageRead more on:    Retail | Ridf | Idbi Bank | M S Raghavan

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Noting the missed opportunities in lending to rural and small and medium enterprises, M S Raghavan, new chairman and managing director of IDBI Bank, wants the bank to shed the "arithmetic growth" mindset.

He wants the bank to scale up activity in retail and rural lending and financial inclusion, building on its corporate business, once the mainstay of the erstwhile development finance institution.

In his address to bank employees, Raghavan, who took charge last week, said the bank had to take a leap and work with a "geometric growth" approach.

The bank would soon begin work on a five-year plan. Its board is meeting on Thursday in New Delhi to review results for the June quarter of the current finacial year. The bank has a lot of ground to cover in priority-sector lending, too.

Its agriculture credit portfolio, a key component of priority-sector lending, shrank 21.2 per cent in 2012-13 to Rs 6,493 crore, from Rs 8,237 crore a year earlier, according to finance ministry data.

Raghavan said he was pained to sign a note on IDBI making a huge contribution to the Rural Infrastructure Development Fund, which fetches a return of just 5.3 per cent. Banks have to contribute to the fund to compensate for shortfall in priority-sector lending.

Of its 1,077 branches (as of March), 132 were in rural areas and 282 in semi-urban regions.

SIGHT NOW ON PRIORITY SECTOR

Shift mindset from ‘arithmetic growth’ to ‘geometric growth’, says new chiefRural ramp-up for low cost money and loansGrow retail and SME businessScale up delivery channelsBuild on customer centric focus

Casa growthThe Mumbai-based public sector lender saw loans and deposits growth moderate in 2012-13, as the economy slowed and demand turned sluggish. Loan growth declined from 15 per cent in 2011-12 to nine per cent in 2012-13. Deposit growth also moderated, to eight per cent, in the past financial year, from 17 per cent in 2011-12.

He said, on the liabilities side, the bank was weak in Casa (current account and savings accounts), a cheap deposit pool. The share of this category in the total deposits has grown to 25.1 per cent in the past three years, from 14.6 per cent in March 2010.

Though an improvement over previous periods, the levels are still low compared to other public sector banks (PSBs).

The share of Casa was 30.3 per cent in the total deposit pool of PSBs at the end of March, according to finance ministry data. The share of retail loans was also low.

The loans under the personal banking group were Rs 32,703 crore of the total advances of Rs 1,96,306 crore at the end of March.Read more on:   Retail|Ridf|Idbi Bank|M S RaghavanRead MoreYES Bank says RBI steps unlikely to hit its profitsRBI had decided to cap the daily liquidity adjustment facility at Rs 75,000 cr, increase the marginal standing facility rate to 10.25%S P Tulsian's Stock PicksGet Daily Trading Ideas, F&O Calls,   Intra day Tips, & Recommendations! SPTulsian.com/Tulsian_Stock_TipsHome Loan at 9.74%*Upto 1 Lakh Cashback*,0 Prepayment   Charges,Instant Quote-Apply Online! apply.standardchartered.co.inAds by Google

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Priority Sector Lendingr

Articles

'No need to bring infra credit under priority lending'RBI Deputy governor KC Chakrabarty said there was no need to classify banks' advances to infrastructure sector as priority sector lending (PSL) saying there is enough credit flow to this critical sector.

RBI, banks discuss revision of priority sector lendingThe Reserve Bank of India discussed the possibility of revision in priority sector lending norms with bank chiefs, who pressed for some modifications in the final guidelines on the issue released in July. 

Priority lending norms will have little impact: BarclaysBritish lender Barclays' equity research unit said the guidelines on classification of the priority sector lending for banks released last week are only "marginally tougher".

New priority lending norms will hit pvt, foreign banks mostThe Nair committee recommendations aim at greater inclusion but will be a big challenge for foreign and private banks with limited branch network.Wire

Economic Times

Wholly-owned subsidiaries: RBI takes cautious approach2013-08-13 22:30:00The Reserve Bank of India (RBI) will soon publish final wholly-owned subsidiary (WOS) guidelines for international banks in India. The regulator unveiled its road map in 2005 and has issued phased directions subsequently. However, in light of the interna

MSN India

Capri Global plans aggressive India expansion2013-08-09 11:53:00ew Delhi: Having roped in US-based hedge fund Capri as a strategic partner, Indian non-banking financial firm Money Matters Financial Services has decided to change its name to 'Capri Global Capital' and is planning to aggressively expand its

operations Economic TimesCapri Global plans aggressive India expansion2013-08-09 10:29:00NEW DELHI: Having roped in US-based hedge fund Capri as a strategic partner, Indian non-banking financial firm Money Matters Financial Services has decided to change its name to 'Capri Global Capital' and is planning to aggressively expand its operations .

‘No need to bring infra credit under priority lending’Sep 4, 2012RBI Deputy governor KC Chakrabarty said there was no need to classify banks’ advances to infrastructure sector as priority sector lending (PSL) saying there is enough credit flow to this critical sector.

“I have no problem in banks lending to infrastructure companies, but don’t classify that as priority sector lending,” Chakrabarty said.

Reuters

Chakrabarty said there is no problem of credit flow to the infrastructure sector, which is estimated to require investments of over $1 trillion during the 12th Plan period starting this fiscal.

The high credit flow to the infra sector, which involves longer gestation projects, from banks worries the Reserve Bank due to the likely asset liability mismatches, he said.

“Infrastructure has no problem of credit. In fact, we are worried that banks are giving too much credit to infra companies,” he said, without pointing the exact concerns.

Even after coming out with the final guidelines on priority sector lending norms in July after the customary consultative process, Governor D Subbarao had said during July 30 credit policy that the central bank would be revisiting the norms after some bankers, especially from large foreign banks, expressed reservations.

RBI, banks discuss revision of priority sector lendingAug 29, 2012The Reserve Bank of India discussed the possibility of revision in priority sector lending norms with bank chiefs, who pressed for some modifications in the final guidelines on the issue released in July.

The issues discussed included classification of credit to export units and elevated lending targets to agriculture, bankers said. “We’ve given some of our views, let them examine. We’ve raised a lot of issues and RBI is very open to discuss, (this) is what they have indicated,” state-run Union Bank of India Chairman and Managing Director D Sarkar said.

He said the core of bankers’ reservations revolve around definitions of what qualifies as priority sector lending. Every bank, he said, will soon be submitting data in this regard to the RBI, whose main concern is to ensure a flow of credit to agriculture.

Even though RBI released the final guidelines on priority sector lending in July, concerns

expressed by bankers had prompted Subbarao to announce that norms will be revisited.

Reuters

Even though RBI released the final guidelines on priority sector lending in July, concerns expressed by bankers had prompted Subbarao to announce that norms will be revisited.

According to him, bankers have expressed displeasure over the RBI putting a foreign bank with over 20 branches in the country at par with domestic ones on priority sector lending.

To meet credit needs of large sections of population who had no access to institutional finance, RBI created the framework of priority sector lending with mandated targets.”With this new policy, whether 40 percent (lending to priority sector out of total credit) is possible or may be something else is required, needs to be looked into,” Canara Bank Chairman and Managing Director S Raman said.

Chief Executive and Managing Director of south-based private lender ING Vysya Bank, Shailendra Bhandari, said each bank will be making a representation to the RBI (on priority sector lending issue).

He expressed confidence that the Central bank and the Government will be “reasonable” in their stand. Other bankers, who participated in the meeting, included the heads of State Bank of India, Bank of Baroda, Punjab National Bank and ICICI Bank, among others.

PTI

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Priority lending norms will have little impact: BarclaysJul 23, 2012British lender Barclays’ equity research unit said the guidelines on classification of the priority sector lending for banks released last week are only “marginally tougher”.

“In our view, these norms are only marginally tougher than the old norms,” it said in a note. The changes by having a rate cap on securitisation and assignment routes will limit securitisation activity in the used vehicles and equipment space but not for the new ones, the note said.

Under the revised PSL guidelines released last week, the RBI said for a loan to be classified as PSL, the rate charged to the ultimate borrower by the originator should not exceed the base rate of the bank by 8 percent.

Reuters

Other criteria like capping the home loans at Rs 15 lakh (small cities) and Rs 25 lakh (in big cities) will “not prove onerous” for lenders given the average loans sizes are under Rs 15 lakh.

Similarly, the requirement to cap loans under Rs 10 lakh for small businesses in the services space will also not affect the workings as companies, especially in the investment heavy transport segment, will go to multiple lenders for their requirements, the note says.

It also noted that two potentially adverse recommendations made by the MV Nair committee, on which the guidelines are based, like capping limit on securitisation and having a target on lending to small and marginal farmers, have not been adopted in the final guidelines.

New priority lending norms will hit pvt, foreign banks mostby Sourav Majumdar May 29, 2012Times are going to be challenging for foreign and private banks on the priority sector lending front, following the recent recommendations of an RBI-appointed committee to review such lending norms.

The MV Nair committee recommendations on priority sector lending, constituted by the Reserve Bank of India (RBI) in August 2011, adopted a wide and exhaustive consultation process, and identified key issues facing diverse segments and sections of society; examined them thoroughly and made recommendations that would support achieving the objectives of directed lending.While unveiling the committee’s report in February this year, the RBI had said, “The recommendations of the committee are expected to have significant impact in addressing the issue of directing lending to those who have lack of access to credit and to those sectors which generate large employment. It is hoped that these recommendations would promote the country’s developmental and inclusive goals.”

The logo of Reserve Bank of India. Reuters

With limited branch network, foreign banks would be hit hard by the new norms which mandate an increase in the priority sector lending target for foreign banks at 40 percent of adjusted net bank credit, the same level applicable for domestic commercial banks. This is a significant increase from the 32 percent earlier.

The increase is important since it puts foreign banks, which have strong balance-sheets, on a par with domestic banks as far as priority lending is concerned. But how far the foreign banks will be able to achieve this new target now remains to be seen.

A recent note put out by broking house Motilal Oswal on the changes in banking norms says the new RBI norms, while aiming at better financial inclusion, will lead to a rise in operating expenses. “Balancing of risk and growth will be a key,” the note says.

The Nair committee, significantly, has also proposed new sub-segments—for small and marginal farmers and weaker sections—within the overall norms. In case of small and marginal farmers, banks will need to achieve a target of 9 percent of adjusted net bank credit by FY16 (2015-16). Banks – both state-run and foreign – are currently way behind in these targets and hence will need to step up their lending to these sectors. “Banks would have to balance the risk of asset quality while aiming to achieve the target, which would be a challenge,” the Motilal Oswal note says.

However, one of the major pluses of these recommendations is the doing away of the distinction between direct and indirect lending to agriculture. The sector ‘agriculture and allied activities’ will be a composite sector within the priority sector – there is not distinction between direct and indirect agriculture. The targets for agriculture and allied activities will be 18 percent of ANBC (adjusted net bank credit) or CEOBE (credit equivalent of off-balance sheet exposure), whichever is higher, according to the committee.

Said RBI, “The MSE (medium and small enterprises) sector may continue to be under priority sector. Within the MSE sector, a sub-target for micro enterprises is recommended equivalent to 7 percent of ANBC or CEOBE, whichever is higher, to be achieved in stages by 2013-14.”

While increasing the foreign banks’ priority sector target to 40 percent, the committee has also set sub-targets of 15 percent for exports and 15 percent for MSE sector, within which 7 percent is to be earmarked for micro enterprises.

Banks may be encouraged to ensure that the number of outstanding beneficiary accounts under ‘small and marginal farmers’ and micro enterprises’ each register a minimum annual growth rate of 15 percent, the committee says.

These new sub-targets, experts believe, will be a big challenge for private and foreign banks, since the lending levels for these banks are well below these new targets.

The RBI’s view seems to be that it is now time foreign and private banks, having done business in India for long, join as equal stakeholders in the objective of greater financial inclusion. The aim is to increase direct lending to those who have a lack of access to credit and those sectors which generate large employment. How the foreign and private banks respond to these targets remains to be seen.

Wholly-owned subsidiaries: RBI takes cautious approachAug 14, 2013, 04.00AM IST

(The Reserve Bank of India…)By Devendra RaghavThe Reserve Bank of India (RBI) will soon publish final wholly-owned subsidiary (WOS) guidelines for international banks in India.

The regulator unveiled its road map in 2005 and has issued phased directions subsequently. However, in light of the international economic downturn, it has, to date, deferred from making a definitive policy decision.

Today, 37 international banks provide banking services in India via 324 branches. Indeed, many larger international banks with a presence in India are well integrated into the domestic system and compete with domestic banks in both the private and public sector. As of March 31, 2012, foreign banks had a 4.5% share of total Scheduled Commercial Banks (SCB) deposits and 5% of total SCBs credits.

In an effort to protect the interests of retail depositors and creditors, the RBI has adopted a cautious approach towards wholly-owned subsidiaries. After all, in a buoyant economy, the relationship between bank branch and parent may be of little importance but, in adverse conditions, the structure and location of both assets and liabilities have the potential to become far more important. Local incorporation gives greater control to the host country regulator, which can act independently against the branch operations. The wholly-owned subsidiary model makes it easier to define the appropriate law of jurisdiction.At present, the foreign bank branches are free to increase their lending capacity based on the parent bank's capital. In terms of corporate governance, it also reduces local dependence as, typically, it facilitates control and support from the regional and/or head office. Conversion into WOS status could prove onerous for international incumbents not only in terms of adhering to potentially challenging timelines but also because it requires host country approval.The circular issued by the RBI in July 2012 on priority sector lending has bifurcated foreign banks into two categories: those with more than 20 branches as 'large' foreign banks, and those with less than 20 branches as 'small' foreign banks.

'Large' foreign banks have a target dedicated to the priority sector which has been increased from 32% to 40% of adjusted net bank credit (ANBC). Moreover, to meet their sub-target, they are also required to lend to the agriculture sector in line with domestic banks, keeping a sub-target of 18% of ANBC. The move has created an undulation among large foreign banks with more than 20 branches. The move by regulator is a clear indication of walking a path of WOS route.

Focusing on the role of agriculture in the Indian economy in the draft presented by RBI on the WOS route, a subtarget of 10% on agricultural advances was recommended for WOS. If the option is given on the WOS route, it is a matter of internal debate for large foreign banks, whether they should look out for the wholly-owned subsidiary route or continue with the 40% priority sector target including the 18% for agricultural target.Today, the granting of bank branch licences to international banks is governed by a commitment to the World Trade Organisation (WTO) to grant 12 licences per annum although, in practice, a higher number have been granted according to merit. Should the regulator adhere to the WTO limit, the implications for international banks are substantial.Existing foreign banks are also required to address the issue of tax treatment on conversion. It appears that for any capital gain arising out of the transfer of property, goodwill and other asset of capital nature to its subsidiary, there are provisions under the Income Tax Act.In addition, more clarity is required in relation to the dilution of a stake within a prescribed period of operations so that at least 26% of the paidup capital of the subsidiary is held by resident Indians at all times.

The head offices of international banks in India may have to go back to the drawing board to reach an effective strategy to make the most of their presence in India. They are likely to encounter a bumpy road.

Capri Global plans aggressive India expansion

A leading non-banking financial company, CGCL — India is currently focused on

wholesale lending business since April 2011 with total disbursements of Rs 1,200 crore

to various corporates

New Delhi: Having roped in US-based hedge fund Capri as a strategic partner, Indian

non-banking financial firm Money Matters Financial Services has decided to change its

name to 'Capri Global Capital' and is planning to aggressively expand its operations and

launch new products.

Chicago-based USD 3.4 billion fund Capri Capital Partners' chief Qunitin E Primo III has

also been appointed as the Non-Executive Chairman of the Indian company.

Pursuant to this appointment, the company plans to expand aggressively and expand its

operations and launch new products, it said in a statement.

“With Quintin coming on board, we plan to aggressively expand our operations and

launch new products including expansion of lending portfolio to MSME segments as a

part of diversification strategy with special focus on priority sectors,” Capri Global’s

India Managing Director, P.H. Ravikumar, said.

As part of its strategy to expand and broadbase its portfolio, CGCL-India will expand its

footprint to 24 cities, including Tier II and III cities in the next three years. It currently has

offices in Mumbai, Delhi, Ludhiana and Ahmedabad.

“Over the next five years, we will leverage the existing balance sheet and focus on

securitisation opportunities to broadbase and build a profitable MSME and priority sector

lending portfolio, and we aim to deploy around Rs 1,900 crore under MSME & priority

sector lending by the end of financial year 2016-17,” he said.

Money Matters Financial Services had entered into a strategic tie up with Capri and was

renamed Capri Global Capital Ltd (CGCL—India) with effect from July 24.

A leading non-banking financial company, CGCL — India is currently focused on

wholesale lending business since April 2011 with total disbursements of Rs 1,200 crore

to various corporates.

Capri Capital Partners LLC is a $3.4 billion fund focused on real estate and structured

equity investments.

Meanwhile, CGCL — India has started its MSME and priority sector lending from the

fourth quarter (January-March) of 2012-13.

In the first three months of operations, the lending was more than Rs 35 crore with a

client base of around 40 customers.

Capri Global plans aggressive India expansionPTI Aug 9, 2013, 03.59PM IST

(Capri Capital Partners…)NEW DELHI: Having roped in US-based hedge fund Capri as a strategic partner, Indian non-banking financial firm Money Matters Financial Services has decided to change its

name to 'Capri Global Capital' and is planning to aggressively expand its operations and launch new products.Chicago-based $3.4 billion fund Capri Capital Partners' chiefQunitin E Primo III has also been appointed as the Non-Executive Chairman of the Indian company.

Pursuant to this appointment, the company plans to expand aggressively and expand its operations and launch new products, it said in a statement.

"With Quintin coming on board, we plan to aggressively expand our operations and launch new products including expansion of lending portfolio to MSME segments as a part of diversification strategy with special focus on priority sectors," Capri Global's India Managing Director P H Ravikumar said.As part of its strategy to expand and broadbase its portfolio, CGCL-India will expand its footprint to 24 cities including Tier II and III cities in the next three years. It currently has offices in Mumbai, Delhi, Ludhiana andAhmedabad."Over the next 5 years, we will leverage the existing balance sheet and focus on securitisation opportunities to broad-base and build a profitable MSME and priority sector lending portfolio, and we aim to deploy around Rs 1,900 crore under MSME & priority sector lending by the end of financial year 2016-17," he said.Money Matters Financial Services had entered into a strategic tie up with Capri and was renamed Capri Global Capital Ltd (CGCL-India) with effect from July 24 this year.

A leading non-banking financial company, CGCL - India is currently focused on wholesale lending business since April 2011 with total disbursements of 1,200 crore rupees to various corporate.Capri Capital Partners LLC is a $3.4 billion fund focused on real estate and structured equity investments.Meanwhile, CGCL - India has started its MSME and priority sector lending from the fourth quarter (January-March) of 2012-13.

In the first 3 months of operations, the lending was more than Rs 35 crore with a client base of around 40 customers.