Five-year schedule called for; other Nair panel recommendations on lending rules for domestic entities broadly accepted
Foreign banks in India and having more than 20 branches are to be treated on a par with domestic banks in priority sector lending.
According to the latest norms, issued today by the Reserve Bank of India (RBI), these banks must extend 40 per cent of their net credit to the priority sector, a norm hitherto applicable only for domestic banks. Only four foreign banks have more than 20 branches — Standard Chartered, HSBC, Citibank and Royal Bank of Scotland (RBS).
Some loans that would be classified as priority sector
- Loans up to Rs 1 crore to micro and small service enterprises
- Loans to food and agro processing units
- Loans to distressed farmers indebted to non-institutional lenders
- Overdrafts up to Rs 50,000 in no-frills accounts
- Loans to individuals other than farmers up to Rs 50,000 to prepay their debt to non-institutional lenders
- Loans up to Rs 25 lakh for housing in metros having population above 1 million
- Loans up to Rs 15 lakh for housing in cities having population less than 1 million
- Education loans up to Rs 10 lakh for studying in India and Rs 20 lakh for studying abroad
Four foreign banks in India have more than 20 branches
- Standard Chartered Bank: 94 branches
- Hongkong & Shanghai Banking Corporation: 50 branches
- Citibank: 42 branches
- Royal Bank of Scotland: 31 branches
These foreign banks have been given five years, starting April 2013, to meet the new norms. They have been asked to file an action plan by December 31 for achieving the targets over a specific time frame, needing RBI approval.
When asked, these four banks were not willing to comment. “We are going through the details and it will be premature to comment now,” said the spokesperson of one of these.
Incidentally, RBS, with 31 Indian branches, had applied to the regulator to sell its retail and commercial banking businesses to HSBC, along with a sizeable number of branches. The application is still pending with RBI.
Another foreign lender, Deutsche Bank, has 16 branches and one unused licence, bringing it close to that 20-mark. Foreign banks with less than 20 branches will have no sub-targets within the overall priority sector lending target, retained at 32 per cent.
The norms issued today were broadly in line with the recommendations of the Nair committee on priority sector lending classification.
The targets under both direct and indirect agriculture are retained at 13.5 per cent and 4.5 per cent, respectively.
In addition, bank loans to micro finance institutions for onward lending to individuals would continue to have the priority sector status.
The new norms have also aimed to discourage loans by informal channels such as local money lenders.
Bank loans to distressed farmers indebted to non-institutional lenders, and loans to individuals other than farmers up to Rs 50,000 to prepay their debt to non-institutional lenders, are to be classified under priority sector lending.
And, loans up to Rs 25 lakh for housing in metropolitan centres (population over a million) and loans up to Rs 15 lakh for other centres will be classified under priority sector lending.
RBI provided some relief by removing the five per cent cap on bank loans to non-banking financial institutions for on-lending to specified segments.
In the draft norms, the banking regulator had said these loans would be classified under the priority sector up to a maximum of five per cent of adjusted net bank credit or credit equivalent of off-balance sheet exposure, whichever was higher.
In today’s revised guidelines, RBI removed this cap and said “investments by banks in securitised assets, outright purchases of loans and assignments to be eligible for classification under priority sector, provided the underlying assets qualify for priority sector treatment and the interest rate charged to the ultimate borrower by the originating entity does not exceed the base rate of such bank plus eight per cent per annum.”