DEVELOPMENT BANKING

PRIORITY SECTOR LENDING LATEST GUIDELINES

PRIORITY SECTOR LENDING

DEFINITION: PRIORITY SECTOR PLAYS AN IMPORTANT ROLE IN THE ECONOMIC DEVELOPMENT OF THE COUNTRY. THEREFORE, GOVERNMENT OF INDIA GIVES THIS SECTOR PRIORITY (FIRST PREFERENCE) IN OBTAINING LOANS FROM BANKS AT A LOW RATE OF INTEREST. THIS IS KNOWN AS A PRIORITY SECTOR LENDING.

PRIORITY SECTOR LENDING

AN IMPORTANT CHANGE AFTER THE NATIONALIZATION OF BANKS (19.06.1969)IS THE EXPANSION OF ADVANCES TO THE PRIORITY SECTORS. ONE OF THE MAIN OBJECTIVES OF NATIONALISATION OF BANKS IS TO EXTEND CREDIT FACILITIES TO THE BORROWERS IN THE SO FAR NEGLECTED SECTORS OF THE ECONOMY. TO ACHIEVE THIS, THE BANKS FORMULATED VARIOUS SCHEMES TO PROVIDE CREDIT TO THE SMALL BORROWERS IN THE PRIORITY SECTORS, LIKE AGRICULTURE, SMALL-SCALE INDUSTRY, ROAD AND WATER TRANSPORT, RETAIL TRADE AND SMALL BUSINESS.

PRIORITY SECTOR LENDING

AN IMPORTANT CHANGE AFTER THE NATIONALIZATION OF BANKS (19.06.1969)IS THE EXPANSION OF ADVANCES TO THE PRIORITY SECTORS. ONE OF THE MAIN OBJECTIVES OF NATIONALISATION OF BANKS IS TO EXTEND CREDIT FACILITIES TO THE BORROWERS IN THE SO FAR NEGLECTED SECTORS OF THE ECONOMY. TO ACHIEVE THIS, THE BANKS FORMULATED VARIOUS SCHEMES TO PROVIDE CREDIT TO THE SMALL BORROWERS IN THE PRIORITY SECTORS, LIKE AGRICULTURE, SMALL-SCALE INDUSTRY, ROAD AND WATER TRANSPORT, RETAIL TRADE AND SMALL BUSINESS.

PRIORITY SECTOR LENDING

PSL Inludes: Agriculture (Direct & Indirect) Micro and Small Enterprises Micro Credit Up to Rs. 50000/Education- India 10 L, Abroad- 20 L Housing- New 25L, Repair- 1L - (R/SU) 2L U/M Finance to state sponsored organisation for SC/ST Advances to weaker section

PRIORITY SECTOR LENDING - TARGETS

Investment in P & M Inv. In Equipments Manufacturing Services Micro Entp. Up to 25 L up to 10 L Small Entp. >25 L 5 cr. >10L- 2cr. Medium Entp. >5 cr -10 cr >2Cr 5 cr The Spread of MSME should be as follows: 40% - Investment up to 5 lacs (Mfg) & 2 lacs (Serv) 20% - Investment >5 L up to 25 L (Mfg) up to 10L (Serv) 40% - Invest ment >25 L (Mfg) > 10 L (Serv)

PRIORITY SECTOR LENDING

DIRECT FINANCE TO AGRICULTURE

FINANCE TO INDIVIDUAL FARMER [SHG (SELF HELP GROUP) OR JLG (JOINT LIABILITY GROUP)] FOR AGRICULTURE AND ALLIED ACTIVITIES SHORT TERM LOANS - FOR RAISING CROPS INCLUDING TRADITIONAL /NON TRADITIONAL PLANTATION AND HORTICULTURE 10 L AGAINST PLEDGE or HYPOTHECATION-PRODUCE WORKING CAPITAL & TL FOR PRODUCTION & INVESTMENT for AGRIL & ALLIED ACTIVITIES LOANS TO SF/MF FOR PURCHASE OF LAND FOR AGRIL PURPOSE LOANS TO DISTRESSED FARMERS INDEBTED TO INFORMAL SOURCE Against appropriate collateral or group security

LATEST GUIDELINES
Direct Agriculture Bank loans to following entities would also qualify for lending to direct agriculture: Loans to corporates including farmers' producer companies of individual farmers, partnership firms and co-operatives of farmers directly engaged in Agriculture and Allied Activities, viz., dairy, fishery, animal husbandry, poultry, bee-keeping and sericulture (up to cocoon stage) up to an aggregate limit of Rs.2 crores per borrower for the following purposes.

LATEST GUIDELINES (CONTD)

(i) Short-term loans for raising crops - crop loans. (ii) Medium & long-term loans for agriculture and allied activities. (iii) Loans for pre-harvest and post-harvest activities, viz., spraying, weeding, harvesting, grading and sorting. (iv) Export credit for exporting their own farm produce

DIRECT MEDIUM TERM / LONG TERM AGRI ADVANCES

-RECLAIMATION AND LAND DEVELOPMENT -DEVELOPMENT OF IRRIGATION POTENTIAL -PRODUCTION AND PROCESSING OF HYBRID SEEDS -PURCHASE OF AGRICULTURAL EQUIPMENTS -CONSTRUCTION OF FARM BUILDINGS/STRUCTURES BULLOCK SHEDS, IMPLEMENT SHEDS, TRACTOR SHED -PURCHASE OF AGRICULTURAL LAND BY SF / MF -INVESTMENT IN SECURITISED ASSETS WHICH REPRESENT DIRECT AGRICULTURAL ADVANCES -MEDIUM TERM LOANS FOR DEVELOPMENT OF DAIRY, POULTRY, PIGGERY, FISHERY, STUD FARM, SERICULTURE

INDIRECT AGRI FINANCE

If the aggregate loan limit per borrower is more than Rs. 2 crores in respect of Direct Agricultural advances, the entire loan should be treated as indirect finance to agriculture. 2. Micro and Small Enterprises (Service Sector) Bank loans to Micro and Small Enterprises (MSE) engaged in providing or rendering of services will be eligible for classification as direct finance to MSE Sector under priority sector upto an aggregate loan limit of Rs. 2 crores per borrower/unit.

INDIRECT AGRI FINANCE

Finance for hire-purchase schemes for distribution of agricultural machinery and implements. Loans to farmers through Primary Agricultural Credit Societies (PACS), Farmers Service Societies (FSS) and Large-sized Adivasi Multi Purpose Societies (LAMPS). Loans to cooperative societies of farmers for disposing of the produce of members. Financing the farmers indirectly through the co-operative system (otherwise than by subscription to bonds and debenture issues).

INDIRECT AGRI FINANCE

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/micro or small enterprise, the loans granted to such units may be classified under advances to Micro and Small Enterprises sector. Advances to Custom 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.

INDIRECT AGRI FINANCE

Finance extended to dealers in drip irrigation/sprinkler irrigation system/agricultural machinery, irrespective of their location, subject to the following conditions. The dealer should be dealing exclusively in such items or if dealing in other products, should be maintaining separate records in respect of of such items. 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.

INDIRECT AGRI FINANCE

Credit outstanding under loans for general purposes under General Credit Cards (GCC). Loans to Non-Banking Financial Companies (NBFCs) for on lending to Individual farmers or their SHGs/JLGs. Loans granted to NGOs/MFIs for on-lending to individual farmers or their SHGs /JLGs. Loans granted to RRBs for on-lending to agriculture and allied activities sector.

INDIRECT FINANCE - SME

Persons involved in assisting the decentralized sector in the supply of inputs to and marketing of outputs of artisans, village and cottage industries. Advances to cooperatives of producers in the decentralized sector viz. artisans village and cottage industries. Loans granted by banks to NBFCs for on-lending to micro and small enterprises (manufacturing as well as service).

MICRO CREDIT
Loans of very small amount not exceeding 50,000 per borrower provided by bank either directly or indirectly through a SHG mechanism or to NBFC for on-lending up to 50,000 per borrower. Loans to poor indebted to informal sector: Loans to distressed persons (other than farmers) to prepay their debt to non-institutional lenders, against appropriate collateral or group security, would be eligible for classification under priority sector.

HOUSING
(i) Loans to individuals up to Rs. 25 lakhs in metropolitan centres with population above ten lakh and Rs.15 lakhs in other centres for purchase/construction of a dwelling unit per family excluding loans sanctioned to banks own employees. (ii) Loans for repairs to the damaged dwelling units of families up to Rs.2 lakhs in rural and semi- urban areas and up to Rs.5 lakhs in urban and metropolitan areas.

HOUSING (CONTD)
(iii) Bank loans to any governmental agency for construction of dwelling units or for slum clearance and rehabilitation of slum dwellers subject to a ceiling of Rs.10 lakh per dwelling unit. (iv) The loans sanctioned by banks to economically weaker sections and low income groups (family income limit of Rs.1,20,000 per annum), the total cost of which does not exceed Rs.10 lakh per dwelling unit.

ADVANCE TO WEAKER SECTIONS

SF and MF with land holding of 5 acres and less, and landless labourers, tenant farmers and share croppers Artisans, village and cottage industries where individual credit limits do not exceed Rs. 50,000/ Beneficiaries of SGSY now National Rural Livelihood mission (NRLM) Scheduled Castes and Scheduled Tribes Beneficiaries of DRI scheme Beneficiaries under SJSRY Beneficiaries under SRMS Advances to SHGs including NGO for on lending purpose Loans to distressed poor to prepay their debt to informal sector, against appropriate collateral or group security Loans granted under above to persons of minority community as notified by GOI

COMMON GUIDELINES
Filling of application forms
In 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. Branches should give acknowledgement for loan applications received from weaker sections. Towards this purpose, that all loan application forms supplied have perforated portion for acknowledgement. A running serial may be given in acknowledgement.

COMMON GUIDELINES
Rejection of Applications Branch Managers may reject applications (except in respect of SC/ST) provided the cases of rejection are verified subsequently by the Regional Managers. In the case of proposals from SC/ST, rejection should be at a level higher than that of Branch Manager. No education loan is to be rejected by the Branch Managers without concurrence of next higher authority. Register of Rejected Applications: A register should be maintained at the branch, wherein the date of receipt, sanction/rejection/disbursement with reasons there for, etc., should be recorded. The register should be made available to all inspecting agencies.

COMMON GUIDELINES
Dealing with the default Where the default is due to genuine reasons branches shall extend the period of loan or reschedule the installments under term loan. Once such a relief has been extended, the overdues become current dues and branches shall not compound interest. Branches shall charge interest on agricultural advances in respect of long duration crops, at yearly rests and shall compound the interest, if the loan/installment becomes overdue.

COMMON GUIDELINES
DISBURSEMENT Agriculture loans cash by obtaining receipt REPAYMENT Repayment based on assessment of surplus. Where repaying capacity is affected by natural calamity restructuring to be done RATE OF INTEREST No compounding of interest in direct agricultural advances on current dues. When crop loans or installments under term loans become overdue, branches shall add interest to the principal.

PRIORITY SECTOR LENDING

OFF BALANCE SHEET EXPOSURE: Bank Guarantees Letters of Credit Indemnities Investment in MFs and Companys Shares through subsidiaries on behalf of Depositors.

BANK RATE
RATE AT WHICH RBI LENDS MONEY TO BANKS FOR SHORT TERM REQUIREMENTS. CURRENT BANK RATE IS 8.50% FROM 19.03.2013

PRIORITY SECTOR LENDING

TARGETS

DEFINITION OF CRR SLR

Cash reserve Ratio (CRR) is the amount of funds that the banks have to keep with the RBI. If the central bank decides to increase the CRR, the available amount with the banks comes down. The RBI uses the CRR to drain out excessive money from the system. Commercial banks are required to maintain with the RBI an average cash balance, the amount of which shall not be less than 3% of the total of the Net Demand and Time Liabilities (NDTL), on a fortnightly basis and the RBI is empowered to increase the rate of CRR to such higher rate not exceeding 20% of the NDTL. CURRENT CRR IS 4%. SLR STATUTORY LIQUIDITY RATIO 23% OF TOTAL DTL ON A FORTNIGHTLY BASIS.

DEFINITION OF REPO RATES

WHAT IS A REPO RATE? THE RATE AT WHICH THE RBI LENDS MONEY TO COMMERCIAL BANKS IS CALLED REPO RATE. IT IS AN INSTRUMENT OF MONETARY POLICY. WHENEVER BANKS HAVE ANY SHORTAGE OF FUNDS THEY CAN BORROW FROM THE RBI. (IT IS RATE AT WHICH RBI REPURCHASES GOVT SECURITIES FROM BANKS) A REDUCTION IN THE REPO RATE HELPS BANKS GET MONEY AT A CHEAPER RATE AND VICE VERSA. THE CURRENT REPO RATE IS 7.50%

DEFINITION OF REV REPO RATES

WHAT IS REVERSE REPO RATE? REVERSE REPO RATE IS THE RATE AT WHICH THE RBI BORROWS MONEY FROM COMMERCIAL BANKS. BANKS ARE ALWAYS HAPPY TO LEND MONEY TO THE RBI SINCE THEIR MONEY ARE IN SAFE HANDS WITH A GOOD INTEREST. AN INCREASE IN REVERSE REPO RATE CAN PROMPT BANKS TO PARK MORE FUNDS WITH THE RBI TO EARN HIGHER RETURNS ON IDLE CASH. IT IS ALSO A TOOL WHICH CAN BE USED BY THE RBI TO DRAIN EXCESS MONEY OUT OF THE BANKING SYSTEM. THE CURRENT REVERSE REPO RATE IS 6.25%

PRIORITY SECTOR LENDING

Targets
40% of ANBC 18%of ANBC (Indirect- 25%) 10% of ANBC 1% of ADV PR.YR No limit but 60% to micro No target, earlier-12% 5% 3% of incremental deposit of previous year ANBC= NBC+ investment in Non SLR bonds or off balance sheet exposure whichever is higher PSA Agriculture Weaker section DRI M&SE Export credit Women Housing

PRIORITY SECTOR LENDING

ADJUSTED NET BANK CREDIT BANK CREDIT IN INDIA - (A) LESS BILLS REDISCOUNTED WITH RBI AND OTHER APPROVED FINANCIAL INSTITUTIONS - (B) NET BANK CREDIT * (C) = (A B) INVESTMENTS IN NON-SLR CATEGORIES + OTHER INVESTMENTS ELIGIBLE TO BE TREATED AS PRIORITY SECTOR = (D) ADJUSTED NET BANK CREDIT = (C + D) * For the purpose of priority sector only. Banks should not deduct / net any amount like provisions, accrued interest, etc. from NBC

PRIORITY SECTOR LENDING

NON SLR SECURITIES / NON CONVERTIBLE DEBENTURES BANKS ARE PERMITTED TO INVEST IN NCDS WITH ORIGINAL OR INITIAL MATURITY UP TO ONE YEAR ISSUED BY CORPORATES (INCLUDING NBFCS)