Dear Readers,

The RBI has recently revised its Priority Sector Lending guidelines
and this change could be important for your exams.

These new norms will be effective from January 1, 2016 and
this will change the Private Sector Lending (PSL) target for Regional Rural
Banks (RRBs) to 75 per cent of the total outstanding loans from the earlier 60
per cent.

Background

On December 3, 2015, the RBI released a new set of norms
that effectively supersede all the earlier guidelines as regards RRBs’ priority
sector lending.

During the previous decade, RRBs have undergone major
structural and operational changes which include two-phased amalgamation,
implementation of Core Banking Solution platform or recapitalization. Given the
increasing significance of RRBs vis-a-vis financial inclusion agenda, the RBI has
revised PSL guidelines for RRBs.

Highlights of the Revised Guidelines

·
A target of 75 per cent of total outstanding will be set to the
eligible sectors for classification as Priority Sector Lending.

·
The Priority Sector will be further categorized into – Medium
Enterprises, Social Infrastructure and Renewable Energy – and will have a cap
of 15 per cent of the total outstanding.

·
Agriculture will have 18 per cent of the total outstanding to
activities pertaining to it.

·
A target of 8 per cent of the total outstanding has been
prescribed for Small and Marginal Farmers within the umbrella of Agriculture.

·
The PSL will be monitored on a quarterly and annual basis.

·
Sub sector targets will be 18 per cent for Agriculture, 8 per cent
for Small and Marginal Farmers, 7.5 per cent for Micro Enterprises and 15 per
cent for Weaker Sections.

·
These Weaker Sections include (i) artisans, village and cottage
industries where individual credit limits are not more than ₹1 lakh, (ii) beneficiaries under Government
Sponsored programs like National Rural Livelihood Mission (NRLM), National
Urban Livelihood Mission (NULM) and Self Employment Scheme for Rehabilitation
of Manual Scavengers (SRMS), (iii) overdrafts up to ₹5,000 under the
Pradhan Mantri Jan Dhan Yojana accounts, provided the borrowers’ household
annual income is not more than ₹1,00,000 for rural areas and ₹1,60,000 for
non-rural areas, (iv) beneficiaries of the Differential Rate of Interest (DRI) scheme,
and (v) individual women beneficiaries up to ₹1 lakh per borrower.

·
No loan related and adhoc service or inspection charges should be applicable
on priority sector loans of up to ₹ 25,000. In case of Self Help Groups or
Joint Liability Groups, the loan limit should be applicable per member of the group
and not to the group as a whole.

·
A record in the form of a register or electronic log should be
maintained by the bank in which the date of receipt, sanction, rejection or
disbursement (whichever applicable) with specified reasons should be maintained.
This record should be made available to all the inspecting agencies.

·
Banks should provide acknowledgement for loan applications
received under PSL. Bank boards should set a time limit within which the bank communicates
its decision in writing to the applicants.

·
Banks should ensure that the loans extended under priority sector
are for approved purposes and the eventual use is continuously monitored. Proper
internal controls and systems should be put in place by the banks in this
regard.

Major Categories
under PSL

· Education – Loans to individuals for
educational purposes including vocational courses up to ₹10 lakh irrespective
of the sanctioned amount will be considered eligible for priority sector.

· Housing – Loans to individuals of up to ₹
20 lakh in purchase or construction of a dwelling unit per family, given the
overall cost of the dwelling unit is not more than ₹25 lakh. This will not
include housing loans to banks’ own employees.

·
Loans for repairs to damaged dwelling units of families of up to ₹2
lakh.

·
Bank loans of up to ₹10 lakh per dwelling unit to any governmental
agency for construction of dwelling units or for slum clearance and
rehabilitation of slum dwellers subject to a ceiling.

·
Loans of up to ₹10 lakh per dwelling unit for housing projects
exclusively for the purpose of construction of houses for economically weaker
sections.

· Social Infrastructure – Bank loans of up to ₹5 crore per
borrower for building social infrastructure for activities like schools,
health, drinking water, sanitation, construction or refurbishment of household
toilets and household level water improvements in Tier II to Tier VI centres.

· Renewable Energy – Bank loans of up to ₹15 crore
for purposes such as solar based power generators, biomass based power
generators, wind mills and non-conventional energy based public utilities like
street lights. For individual households, this loan limit would be ₹10 lakh per
borrower.

These
are the major points about the revised guidelines by the Reserve Bank of India
about Private Sector Lending. If you can understand these well, you will be
able to attempt questions on it with greater ease.

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