Introduction
Static GK is one of the important section in both Government Sector and Bank related Exams. In the static GK, Banking is one of the most important topic. The article Priority Sector Lending presents the key points of Priority Sector Lending and different categories of Priority Sector Lending. The article Priority Sector Lending can help the students and aspirants to perform well in the exams like IBPS PO, SO, Clerk, SBI, RRB, etc.
PSL
Priority Sector Lending - PSL :
Generally RBI impose a limit on the lending banks to give a certain percentage of total loans granted during a particular period of time for some selected particular purpose. PSL is measure to control credit flow to priority sectors. In another way Priority Sector means those sectors which the Government of India and Reserve Bank of India consider as important for the development of the basic needs of the country are to be given priority over other sectors. The banks are mandated to encourage the growth of such sectors with adequate and timely credit.
As per RBI Circular Bank lending to priority, sector should be equal to 40 % of the Net Adjusted Credit.
Priority sector are all those sectors that is very important for the economic development of the country. PSL means providing an institutional credit to the sectors and segments.
Priority Sector Lending - PSL - Different Categories of PSL :
- Agriculture
- Micro, Small and Medium Enterprises
- Export Credit
- Education
- Housing
- Social Infrastructure
- Renewable Energy
| Categories | DomesticScheduled commercial banks (excluding RRB’s & Small Finance Banks) and Foreign banks with 20 branches and above | Foreign banks with less than 20 branches |
|---|---|---|
| Total Priority Sector | 40 percent of Adjusted Net Bank Credit or Credit Equivalent Amount of Off-Balance Sheet Exposure, whichever is higher. | 40 percent of Adjusted Net Bank Credit or Credit Equivalent Amount of Off-Balance Sheet Exposure, whichever is higher achieved in a phased manner by 2020. |
| Agriculture |
|
Not applicable |
| Micro Enterprises | 7.5 percent of ANBC or Credit Equivalent Amount of Off-Balance Sheet Exposure, whichever is higher. | Not applicable |
| Advances to Weaker Sections | 10 percent of ANBC or Credit Equivalent Amount of Off-Balance Sheet Exposure, whichever is higher. | Not applicable |
Categories under ‘Agriculture’:
The activities covered under Agriculture are classified under three sub-categories viz. Farm credit, Agriculture infrastructure and Ancillary activities.
Limits prescribed for loans sanctioned to Micro, Small and Medium Enterprises to be classified as priority sector
- For classification under priority sector, no limits are prescribed for bank loans sanctioned to Micro, Small and Medium Enterprises engaged in the manufacture or production of goods under any industry specified in the first schedule to the Industries (Development and Regulation) Act, 1951.
- Bank loans to Micro, Small and Medium Enterprises engaged in providing or rendering of services and defined in terms of investment in equipment under MSMED Act, 2006, irrespective of loan limits, are eligible for classification under priority sector, regarding March 1, 2018.
- Bank loans up to a limit of 5 crore per borrower for building social infrastructure for activities namely schools, health care facilities, drinking water facilities and sanitation facilities in Tier II to Tier VI centers are eligible for classification under priority sector.
- Bank credit to Micro Finance Institutions (MFI) extended for on-lending to individuals/ members of SHGs/ JLGs for water and sanitation facilities is also eligible for classification as priority sector loans under ‘Social Infrastructure’.
- Bank loans up to a limit of 15 crore to borrowers for purposes like solar based power generators, biomass based power generators, wind mills, micro-hydel plants and for non-conventional energy based public utilities.
- For individual households, the loan limit is 10 lakh per borrower.
- Minority communities
- Persons with disabilities
- Individual women beneficiaries up to 1 lakh per borrower
- Distressed persons other than farmers, with loan amount not exceeding 1 lakh per borrower to prepay their debt to non-institutional lenders
- Distressed farmers indebted to non-institutional lenders.
- Self Help Groups
- Beneficiaries of Differential Rate of Interest (DRI) scheme
- Scheduled Castes and Scheduled Tribes
- Scheduled Castes and Scheduled Tribes
- Small and Marginal Farmers
- Artisans, village and cottage industries where individual credit limits do not exceed 1 lakh
Note: Bank credit to MFIs (NBFC-MFIs, societies, trusts, etc) extended for on-lending to individuals and also to members of SHGs/JLGs is eligible for categorization as priority sector advance under respective categories viz., Agriculture, Micro, Small and Medium Enterprises, Social Infrastructure and Others.
Priority Sector Lending Certificates :
- Priority Sector Lending Certificates (PSLCs) are a mechanism to enable banks to achieve the priority sector lending target and sub-targets by purchase of these instruments in the event of shortfall.
- This also incentivizes surplus banks as it allows them to sell their excess achievement over targets thereby enhancing lending to the categories under priority sector.
- Under the PSLC mechanism, the seller sells fulfillment of priority sector obligation and the buyer buys the obligation with no transfer of risk or loan assets.
Rate of interest for loans under priority sector:
- The rate of interest on bank loans will be as per directives issued by the Department of Banking Regulation of RBI, from time to time.
- Priority sector guidelines do not lay down any preferential rate of interest for priority sector loans.
- Housing loans of up to Rs 35 lakhs, for dwellings costing less than Rs 45 lakhs, will be treated as priority sector lending (PSL), to give a fillip to the low-cost segment, the Reserve Bank said, on June 19, 2018.
- PSL loans are relatively cheaper than market interest rates.
- Currently, loans to individuals for up to Rs 28 lakhs in metropolitan centers and Rs 20 lakhs in other centers, can be classified under priority sector, provided that the cost of dwelling unit does not exceed Rs 35 lakhs and Rs 25 lakhs, respectively.
Recent Updates on PSL by RBI:
- It has been decided that the sub-target of 8% of Adjusted Net Bank Credit (ANBC) or Credit Equivalent Amount of Off-Balance Sheet Exposure (CEOBE), whichever is higher, shall become applicable for the foreign banks with 20 branches and above, for lending to the small and marginal farmers from FY 2018-19.
- The sub-target of 7.50% of ANBC or CEOBE, whichever is higher, for bank lending to the Micro Enterprises shall also become applicable for the foreign banks with 20 branches and above from FY2018-19.
- It has been decided to remove the currently applicable loan limits of 5 crore and 10 crore per borrower to Micro/ Small and Medium Enterprises (Services) respectively, for classification under priority sector.
- Accordingly, all bank loans to MSMEs, engaged in providing or rendering of services as defined in terms of investment in equipment under MSMED Act, 2006, shall qualify under priority sector without any credit cap