priority sector lending
DESCRIPTION
PRIORITY SECTOR LENDING. S THOMAS PUNNOOSE MEMBER OF FACULTY RBI, CAB, PUNE. Lending to the Priority Sector. BANK. Financial Intermediation. Operational Efficiency. Allocational Efficiency. Sectoral composition of GDP. percent. - PowerPoint PPT PresentationTRANSCRIPT
ACA-TM-37 (v2.2-20-Nov-10) 1
PRIORITY SECTOR LENDING
S THOMAS PUNNOOSEMEMBER OF FACULTY
RBI, CAB, PUNE
ACA-TM-37 (v2.2-20-Nov-10) 2
Lending to the Priority Sector
BANK
Financial Intermediation
Operational Efficiency
Allocational Efficiency
ACA-TM-37 (v2.2-20-Nov-10) 3
Sectoral composition of GDP
Year Agriculture Industries Services Total
1950-51 51.88 11.10 34.63 100.00
1960-61 47.65 13.68 36.60 100.00
1970-71 41.66 15.98 40.91 100.00
1980-81 35.69 18.05 45.26 100.00
1990-91 29.53 20.56 49.61 100.00
2000-01 22.31 20.69 57.00 100.00
2010-11 14.51 19.95 65.54 100.00
2011-12 14.01 19.22 66.77 100.00
percent
ACA-TM-37 (v2.2-20-Nov-10) 4
Outstanding Credit of Scheduled Commercial Banks (according to occupation)
At end Agriculture Industries Services Total
December 1972
9.0 61.2 29.8 100.00
June 1981 16.7 49.1 34.1 100.00
March 1991 15.0 47.6 37.5 100.00
March 2001 9.6 43.9 46.5 100.00
March 2011 11.3 39.6 49.1 100.00
percent
ACA-TM-37 (v2.2-20-Nov-10) 5
• Viable and creditworthy sectors that may not get
timely and adequate credit
• Not a Corporate Social Responsibility but a
normal business operation for banks
• Lending directly through beneficiaries instead of
routing them through intermediaries
• Create innovative structures, products and
processes
New Priority Sector Guidelines – Basic Philosophy
ACA-TM-37 (v2.2-20-Nov-10) 6
• Priority Sector guidelines are aimed at helping
banks attain the targets
• If a sector is not classified as priority sector, it will
not get bank credit
Priority Sector Classification - Wrong notions
ACA-TM-37 (v2.2-20-Nov-10)7
Categories under Priority Sector
1. Agriculture
2. Micro & Small enterprises
3. Education
4. Housing
5. Export Credit
6. Others
7
ACA-TM-37 (v2.2-20-Nov-10)99
Categories Domestic Commercial Banks / Foreign Banks with 20 and above branches
Foreign banks with less than 20 branches
Total Priority Sector
40% of ANBC or credit equivalent amount of Off-Balance Sheet exposure, whichever is higher
32% of ANBC or credit equivalent amount of Off-Balance Sheet Exposures whichever is higher
Total Agriculture • 18% but Indirect lending > 4.5% will not be reckoned for computing achievement under 18% target
No specific target. Forms part of total priority sector
Micro and Small Enterprises
• 40% of total advances to MSE to :-Micro (Mfg) with P/M upto Rs.5 lakh- Micro (Ser) with equip upto Rs.2 lakh• 20% of total advances to MSE to:-Micro (Mfg) with P/M > Rs.5 lakh and upto Rs.25 lakh- Micro (Ser) with equip > Rs.2 lakh and upto Rs.10lakh
No specific target. Forms part of total priority sector
Export Credit Not a separate category. Export credit to eligible activities under agriculture and MSE will be reckoned for Priority Sector
No specific target. Forms part of total priority sector
Advances to Weaker Sections
10% of ANBC or credit equivalent amount of Off-Balance Sheet Exposure whichever is higher
No specific target in the total priority sector
ACA-TM-37 (v2.2-20-Nov-10)10
Targets/Sub-Targets under Priority Sector
– For foreign banks with 20 and above branches,
priority sector targets and sub-targets to be
achieved within a maximum period of five
years starting from April 1, 2013 and ending
on March 31, 2018
– They are to submit an action plan latest by
December 31, 2012 for achieving the targets,
to be approved by RBI
10
ACA-TM-37 (v2.2-20-Nov-10)11
Computation of ANBC
11
Bank Credit in India (as prescribed in item No. VI of Form ‘A’ [Special Return as on March 31st] under Sec 42 (2) of RBI Act, 1934
I
Bills rediscounted with RBI and other approved Financial Institutions II
Net Bank Credit III (I – II)
Investments in Non-SLR categories under HTM Category + other investments eligible to be treated as priority sector
IV
Adjusted Net Bank Credit (ANBC) III + IV
Banks should not deduct / net any amount like provisions, accrued interest etc from NBC
ACA-TM-37 (v2.2-20-Nov-10)12
Agricultural Credit Target fixed by the Government of India for 2012-13 is Rs.5,75,000 crore
ACA-TM-37 (v2.2-20-Nov-10)1313
Direct Agriculture
• Loans to individual farmers (including groups of
individual farmers) engaged in Agriculture and
Allied Activities (dairy, fishery, animal husbandry,
poultry, bee-keeping and sericulture)• Short-term loans for raising crops (will include traditional /
non-traditional plantations, horticulture and allied activities)
• Medium & Long-term loans to farmers for agriculture & allied activities (purchase of agricultural implements and machinery, loans for irrigation and other developmental activities undertaken in the farm and development loans for allied activities)
ACA-TM-37 (v2.2-20-Nov-10)1414
Direct Agriculture: Loans to
• Farmers for pre-harvest and post-harvest activities
viz., spraying, weeding, harvesting, sorting, grading
and transporting of their own farm produce.
• Farmers upto Rs.25 lakh against pledge /
hypothecation of agricultural produce, for a period
not exceeding 12 months
• Small & Marginal Farmers for purchase of land for
agricultural purposes
ACA-TM-37 (v2.2-20-Nov-10)1515
Direct Agriculture: Loans to
• Distressed farmers indebted to non-institutional
lenders
• Bank loans to PACS, Farmers’ Service Societies
and Large-sized Adivasi Multi Purpose Societies
ceded to or managed / controlled by such banks for
on-lending to farmers for agriculture/allied activities
• Loans to farmers under KCC Scheme
• Export credit to farmers
ACA-TM-37 (v2.2-20-Nov-10)1616
Direct Agriculture
• Loans to corporates, including farmers’ producer
companies of individual farmers partnership firms and
cooperatives of farmers directly engaged in Agriculture
and Allied Activities (dairy, fishery, animal husbandry,
poultry, bee-keeping and sericulture) upto an aggregate
limit of Rs.2 crore • Short-term loans for raising crops (will include traditional / non-
traditional plantations, horticulture and allied activities)
• Medium & Long-term loans for agriculture & allied activities (purchase of agricultural implements and machinery, loans for irrigation and other developmental activities undertaken in the farm and development loans for allied activities)
ACA-TM-37 (v2.2-20-Nov-10)1717
Indirect Agriculture: Loans for
• Pre-harvest and post-harvest activities viz.,
spraying, weeding, harvesting, sorting and grading
• Upto Rs.25 lakh against pledge / hypothecation of
agricultural produce, for a period not exceeding 12
months
• Export credit to corporates, partnership firms and
institutions for exporting their own farm produce
ACA-TM-37 (v2.2-20-Nov-10)1818
Indirect Agriculture: Loans to
• Loans upto Rs5 crore to Producer Companies set
up exclusively by only small and marginal farmers,
for agricultural and allied activities
• Bank loans to PACS, Farmers’ Service Societies
and Large-sized Adivasi Multi Purpose Societies
other than those covered under direct agriculture
ACA-TM-37 (v2.2-20-Nov-10)1919
Other Indirect Agriculture Loans
• Loans upto Rs.1 crore per borrower to dealers /
sellers of fertilizers, pesticides, seeds, cattle feed
poultry feed, agricultural implements & other inputs
• Loans for setting up of Agriclinics and Agribusiness
Centres
• Loans upto Rs.5 crore to cooperative societies of
farmers for disposing of the produce of members
ACA-TM-37 (v2.2-20-Nov-10)2020
Other Indirect Agriculture: Loans to
• Custom Service units managed by individuals /
institutions / organizations who maintain a fleet of
tractors/bulldozer/well-boring equipment/threshers etc
and undertake farm work for farmers on contract basis
• Loans for construction & running of storage facilities
(warehouse, market yards, godowns & silos) including
cold storage units designed to store agriculture
produce/products irrespective of their location
ACA-TM-37 (v2.2-20-Nov-10)2121
Other Indirect Agriculture: Loans to
• MFIs for on-lending to farmers for agriculture and allied
activities as per the following conditions:
- Not less than 85% of total assets of the MFI (other than
cash, balances with banks and FI, government securities
and money market instruments) are in the nature of
qualifying assets.
- In addition, aggregate amount of loan, extended for
income generating activity is not less than 75% of the total
loans given by MFIs
ACA-TM-37 (v2.2-20-Nov-10)2222
Other Indirect Agriculture: Loans to
• MFIs for on-lending to farmers for agriculture and allied
activities as per the following conditions (contd…..):
- Further, banks have to ensure that MFIs
comply with caps on margin and interest rates as also other
pricing guidelines
to be eligible to classify these loans as priority sector
- Banks should obtain from MFI at the end of each quarter a
CA’s certificate
ACA-TM-37 (v2.2-20-Nov-10)2323
Qualifying Assets – means a loan disbursed by MFI
satisfying the following conditions:
• Loan is to be extended to a borrower whose household annual income is
not > Rs.60,000 (rural) and Rs.1,20,000 (non-rural areas)
• Loan does not exceed Rs.35,000 in the 1st cycle and Rs.50,000 in
subsequent cycles
• Total indebtedness of the borrower does not exceed Rs.50,000
• Tenure of the loan is not less than 24 months when loan exceeds
Rs.15,000 with right to borrower of prepayment without penalty\
• The loan is without collateral
• Loan is repayable by weekly, fortnightly or monthly installments at the
choice of the borrower
ACA-TM-37 (v2.2-20-Nov-10)2424
Caps on Margin / Interest rates / pricing
• Margin cap at 12% for all MFIs. The interest cost is to be calculated on
average fortnightly balances of outstanding borrowings and interest
income is to be calculated on average fortnightly balances of
outstanding loan portfolio of qualifying assets
• Interest cap on individual loans at 26% per annum for all MFIs to be
calculated on a reducing balance basis
• Only 3 components to be included in pricing of loans viz., processing fee
not > 1% of gross loan amount, interest charge & insurance premium
• Processing fee not to be included in margin cap or interest cap of 26%
• There should be no penalty for delayed payment
• No Security Deposit / Margin are to be taken
ACA-TM-37 (v2.2-20-Nov-10)2525
CA’s Certificate should state that:
• 85% of the total assets of the MFI are in the nature of “qualifying assets”
• The aggregate amount of loan, extended for income generation activity
is not less than 75% of the total loans given by the MFI
• Pricing guidelines are followed
ACA-TM-37 (v2.2-20-Nov-10)2626
Other Indirect Agriculture: Loans to
• NGOs which are SHG Promoting institutions for on-
lending to members of SHGs under SHG-Bank Linkage
Programme for agricultural and allied activities. The all
inclusive interest rate charged by the NGO / SHG
promoting entity should not exceed the Base Rate of
the lending bank plus 8% per annum
• Loans sanctioned to RRBs for on-lending to agriculture
and allied activities
ACA-TM-37 (v2.2-20-Nov-10)2828
Micro & Small Enterprises
MSEs include • Manufacturing Enterprises:
– Micro enterprises – Investment in plant & machinery does not exceed Rs 25 lakh irrespective of the location
– Small enterprises – Investment more than Rs.25 lakh but does not exceed Rs 5 crore
• Service Enterprises: – Micro enterprises - Investment in equipment not
exceeding Rs 10 lakh– Small (service) enterprises - Investment in equipment is
more than Rs.10lakh but does not exceed Rs 2 crore.
ACA-TM-37 (v2.2-20-Nov-10)2929
Micro & Small Enterprises
• Bank loans to micro and small enterprises (both manufacturing and service) are eligible to be classified under PS.
• The small and micro (service) enterprises include – small road & water transport operators – small business– professional & self-employed persons– Retail trade– Consultancy services
ACA-TM-37 (v2.2-20-Nov-10)3030
MSE – Direct Finance • Manufacturing Enterprises: MSEs engaged in the
manufacture/production of goods to any industry specified in the 1st Schedule to Industries (Development & Regulation) Act, 1951
- Loans for food and agro processing
• Service Enterprises: - Bank loans upto Rs.2 crore per unit to MSE engaged in providing or rendering of services
• Export credit to MSE units: for exporting of goods/services
• Khadi and Village Industries Sectors: all loans sanctioned to units in the KVI sector irrespective of size of
operations, location and amount of original investment in P&M
ACA-TM-37 (v2.2-20-Nov-10)3131
MSE – Indirect Finance • Loans to persons involved in assisting the
decentralized sector in the supply of inputs to and
marketing of outputs of artisans, village and cottage
industries
• Loans to cooperatives of producers in the
decentralized sector viz., artisans, village and
cottage industries
• Loans sanctioned by banks to MFIs for on-lending to
MSE sector as per conditions specified earlier
ACA-TM-37 (v2.2-20-Nov-10)3333
Education loans
• Loans granted to individuals for
educational purposes including vocational
courses upto Rs. 10 lakh for studies in India
and Rs. 20 lakh for studies abroad.
ACA-TM-37 (v2.2-20-Nov-10)3535
Housing loans
• Loans to individuals upto Rs.25 lakh in
metropolitan centres with population > ten lakh &
Rs.15 lakh in other centres for
purchase/construction of a dwelling unit per family
(excluding loans granted by banks to their own employees).
• Loans given for repairs to the damaged dwelling
units of families up to Rs. 2 lakh in rural and semi-
urban areas and up to Rs. 5 lakh in urban and
metropolitan areas
ACA-TM-37 (v2.2-20-Nov-10)3636
Housing loans
• Bank loans to any governmental agency for
construction of dwelling units / slum clearance and
rehabilitation of slum dwellers, subject to a ceiling of
Rs.10 lakh per dwelling unit.
• Loans sanctioned by banks for housing projects
exclusively for the purpose of construction of houses
only to economically weaker sections and LIGs the
total cost of which is not > Rs. 10 lakh per dwelling
unit. (family income limit Rs.1.20 lakh per annum irrespective of location)
ACA-TM-37 (v2.2-20-Nov-10)3737
Housing loans
• Bank loans to HFCs, approved by NHB for their
refinance, for onlending for the purpose of
purchase/construction/reconstruction of individual
dwelling units or for slum clearance and
rehabilitation of slum dwellers, subject to a ceiling of
Rs.10 lakh per dwelling unit. The all inclusive interest
rate charged to the ultimate borrower should not
exceed the lowest lending rate of the lending bank
for HLs + 2% per annum
ACA-TM-37 (v2.2-20-Nov-10)3838
Housing loans
• Eligibility under priority sector loans to HFCs is
restricted to 5% of the bank’s total PS lending, on an
ongoing basis. The maturity of bank loans should be
co-terminus with average maturity of loans extended
by HFCs. Banks should maintain necessary borrower-
wise details of the underlying portfolio.
ACA-TM-37 (v2.2-20-Nov-10)4040
Export Credit
• Extended by foreign banks with less than 20
branches will be reckoned for priority sector target
achievement
• As regards domestic banks and foreign banks (with
20 and above branches), export credit is not a
separate category under priority sector
• Export credit towards categories of priority sector i.e.
agriculture and MSE sector will however be
accounted
ACA-TM-37 (v2.2-20-Nov-10)4242
Others:
• Loans not exceeding Rs.50,000/- per borrower
provided directly by banks to individuals and their
SHG / JLG (provided borrower’s household annual income does not exceed
Rs.60,000/- in rural areas and Rs.1,20,000/- in non-rural areas)
• Loans to distressed persons (other than farmers-
already included) not > Rs.50,000/- per borrower to
prepay their debt to non-institutional lenders
• Loans outstanding under loans for general purposes
under GCC
ACA-TM-37 (v2.2-20-Nov-10)4343
Others:
• Overdrafts upto Rs.50,000 (per account) granted
against ‘no-frills’ accounts (provided borrower’s household annual
income is not > Rs.60,000/- in rural areas & Rs.1,20,000/- in non-rural areas)
• Loans sanctioned to State Sponsored Organizations
for SCs / STs for the specific purpose of purchase and
supply of inputs to and/or the marketing of the
outputs of the beneficiaries of these organizations
• Loans sanctioned by banks directly to individuals for
setting up of off-grid solar and other off-grid
renewable energy solutions for households
ACA-TM-37 (v2.2-20-Nov-10)4545
Weaker Sections Category
• Small (landholding more than 1 hectare but less than 2 hectares) and
Marginal farmers (landholding upto 1 hectare)
• Artisans, village and cottage industries where credit
limits do not exceed Rs.50,000.
• Beneficiaries of SGSY
• Scheduled Castes and Scheduled Tribes
• Beneficiaries of DRI Scheme
• Beneficiaries of SJSRY
• Beneficiaries under the SRMS
ACA-TM-37 (v2.2-20-Nov-10)4646
Weaker Sections Category
• Loans to SHGs
• Loans to distressed farmers indebted to non-institutional
lenders
• Loans to distressed persons (other than farmers) not
exceeding Rs.50,000 per borrower to prepay their debt to
non-institutional lenders
• Loans to individual women beneficiaries upto Rs.50,000
per borrower
• Loans sanctioned to persons from minority community
ACA-TM-37 (v2.2-20-Nov-10)4848
Significance of MIS
• A robust MIS is a prerequisite for
- effective monitoring of performance
- understanding the gaps
- formulating the right policy responses
• Processing of data into useful information for MIS and
decision support systems in individual banks as well
as at the aggregate level is important
ACA-TM-37 (v2.2-20-Nov-10)5050
Returns presently furnished by banksNo Returns submitted to Submitted by No. of returns
1. RBI- RPCD SCB RRBs
Cooperative Banks
429
15
2. RBI-DSIM SCB 7Basic Statistical Returns
3. NABARD RBIIBA
SLBCLDMRRB
Cooperative Banks
Multiple Returns to monitor the
performance of SCBs and supervisory returns
for RRBs and Cooperative Banks
4. IBA SCB 4
5. SLBC LDMSCB – Controlling Offices
Differs from State to State
6. Government Departments RBISLBC
NABARD
Varies from time to time
ACA-TM-37 (v2.2-20-Nov-10)5151
Efforts made so far
• NABARD WG constituted to review SAMIS
- development of standardized information system
- BSR coding system as the base for fixing codes
• Ray WG constituted by RBI – 2007
– data-based reporting in place of return-based
reporting system
– formulated an extended coding system
ACA-TM-37 (v2.2-20-Nov-10)5252
Priority Sector Monitoring Information System
• Data to be captured at the base level entity
• Transmitted to a National Level Central Database common
across banks
• The Central Data Repository System will process the data
centrally and make it available across all the stakeholders
• Once functional PSMIS would make available detailed
bank-wise, sub-sector wise, state-wise, district-wise,
block-wise and branch-wise information
ACA-TM-37 (v2.2-20-Nov-10)5353
Transactional Data
Proposed Final Framework under CDRS
Validation
Processing and Generation of Reports
ACA-TM-37 (v2.2-20-Nov-10)5454
Timeframe to implement the new approach
• 1st Phase: creation of CDRA and preparing the
banking system for moving towards PSMIS
• 2nd Phase: setting up of CDRS, release of PSMIS
codes, issue of revised guidelines
• 3rd Phase: to put in place a secured way of capturing
the data from the base system of banks
• 4th Phase: CDRA to complete implementation of CDRS
ACA-TM-37 (v2.2-20-Nov-10)5555
Transactional Data
An interim solution
Processing and report based submission
Processing and Compilation
ACA-TM-37 (v2.2-20-Nov-10)5656
Priority-Sector Data Reporting System
• A robust reporting system with granularity and
system generation of priority sector data is of utmost
importance for proper monitoring and appropriate
policy making.
• Guidelines will be issued in due course
ACA-TM-37 (v2.2-20-Nov-10)5858
Non-achievement of priority sector targets
• Domestic scheduled commercial banks & foreign
banks with branches 20 and above having shortfall in
lending to priority sector / agriculture / weaker
sections shall be allocated amounts for contribution
to the RIDF (NABARD) or funds with NHB / SIDBI etc
• Foreign banks with less than 20 branches which fail
to achieve the priority sector targets are required to
contribute funds with SIDBI or with FI as may be
stipulated by RBI
ACA-TM-37 (v2.2-20-Nov-10)5959
Common guidelines for priority sector loans
• Service Charges: No loan related and adhoc service
charges / inspection charges to be levied on PS loans
upto Rs.25,000
• Receipt, Sanction / Rejection / Disbursement
Register: a register / electronic record to be
maintained and made available to all inspecting
agencies
• Issue of acknowledgement of Loan Applications
ACA-TM-37 (v2.2-20-Nov-10)6060
Investment by banks in securitized assets
• representing loans to PS (except ‘others’ category) are
eligible for classification under respective categories of
PS depending on the underlying assets provided:
– the securitized assets are originated by banks / Fis and are
eligible to be classified as PS advances prior to securitization
– the all inclusive interest charged to the ultimate borrower
by the originating entity should not exceed Base Rate + 8%
• originated by NBFCs where underlying assets are loans
against gold jewellery are not eligible for PS status
ACA-TM-37 (v2.2-20-Nov-10)6161
Transfer of assets through direct assignment / outright purchases
• of pool of assets by banks representing loans under
various categories of PS (except ‘others’ category) are
eligible for classification under respective categories of
PS provided:
– the securitized assets are originated by banks / Fis and are
eligible to be classified as PS advances prior to purchase
– the eligible loan assets so purchased should not be disposed
of other than by way of repayment
– the all inclusive interest charged to the ultimate borrower by
the originating entity should not exceed Base Rate + 8%
ACA-TM-37 (v2.2-20-Nov-10)6262
Inter Bank Participation Certificates
• IBPCs bought by banks on a risk sharing basis shall be
eligible for classification under respective categories of
priority sector, provided the underlying assets are
eligible to be categorized under the respective
categories of PS and the banks fulfill the RBIs
guidelines on IBPCs
