Banks may get more time to meet priority sector target

Cases to be taken up on a case-to-case basis, but RBI wants funds' end use ensured

The Reserve Bank of India (RBI) may relax some of the priority sector target for banks on a case-to-case basis but has asked the lenders to ensure the funds are reaching the beneficiaries.

In a meeting with RBI Deputy Governor K C Chakrabarty on Tuesday, bankers voiced their concern on the revised priority sector lending norms that had excluded some sectors from the priority list. As a result, some banks said the new norms might pose a challenge for them to meet the priority sector target.

Banks have to extend 40 per cent of their net bank credit to the priority sector, of which 13.5 per cent needs to be disbursed directly to the agricultural sector.

WORRISOME NORMS

• Bankers voice concern on the revised priority sector lending norms for excluding sectors from the priority list
• Some banks say the new norms may pose a challenge for them to meet the priority sector target
• Banks unable to meet targets might be asked to submit a road map on how they propose to meet the norms
• Deepak Parekh, chairman of HDFC, has also criticised the revised norms

Banks which are unable to meet the priority sector targets based on the revised norms, might be asked to submit a roadmap on how these propose to meet norms and how much time would be taken to achieve it, bankers who attended the meeting on Tuesday said.

Bankers also said RBI officials emphasised on the fact individuals denied formal banking access were their priority and banks should focus on extending loans to them. In addition, RBI pointed out the data that is submitted by bankers — that the loan was actually extended to the priority sector — is often not reliable.

The central bank had set up a committee under former Union Bank of India Chairman M V Nair to revisit the issue on priority sector.

The revised guidelines on priority sector lending were issued in July and implemented with immediate effect.

The revised norms have faced criticism from several quarters on the grounds that some sectors that are priority for the nation, like infrastructure, have been excluded. It was also argued though agricultural sector’s contribution to gross domestic product has come down but banks’ farm sector loan disbursement target has not been revised.

“Indirect lending to housing finance companies and most NBFCs no longer qualify for priority sector lending,” Deepak Parekh, chairman of HDFC had said on Monday at a investor’s conference while criticising the revised norms.

While on Tuesday’s meeting was attended by domestic banks, both public sector and private sector banks, tomorrow RBI will meet the foreign banks separately.

Foreign banks in India and having more than 20 branches are to be treated at par with domestic banks, according to the revised priority sector lending norms.

According to latest norms, foreign 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).

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.