RBI says open to revisiting priority sector lending norms

Governor said the guidelines were made final only after taking opinions from a cross-section of stakeholders

Even though the final guidelines on priority sector lending (PSL) was released over a fortnight ago, the Reserve Bank today said it is open to revisiting the norms following demands.

"I thought some of the suggestions were quite reasonable," RBI Governor D Subbarao told reporters at the customary post-policy interaction after meeting bankers.

The RBI Governor added that the guidelines were made final only after taking opinions from a cross-section of stakeholders, including bank chairmen.

However, he said a meeting will be held between the banks' operational heads and RBI officials in the next 15 days, to be followed by a senior-level meet between the bank chairmen and a RBI Deputy Governor next month.

"It is not clear what we will change, but certainly we have an open mind," Subbarao said.

Factors on which the bankers have expressed reservations include the direct lending target of 13.5% to agriculture, Subbarao said, adding the bankers expressed doubts whether the agricultural sector has the ability to absorb so much credit.

Additionally, a head of a foreign bank also questioned on the threshold of 20 branches for the bank above which its priority sector lending requirement will be at par with a domestic bank, Subbarao said.

The RBI released the final guidelines of priority sector lending on July 20 based on the recommendations of a panel led by former Union Bank of India chief MV Nair.

Apart from taking foreign lenders with over 20 branches at par with a domestic bank, RBI also said education and home loans up to the specified limits, and advances to individuals for up to Rs 50,000 to clear debts of money lenders, will be treated as priority lending.

In the home loan segment, RBI said advances of up to Rs 25 lakh in cities with population of over 10 lakh, and Rs 15 lakh in other towns, will be treated as priority lending.

Earlier, all loans up to Rs 25 lakh for purchase and construction of dwelling units constituted priority lending.

To meet credit needs of large sections of the population that have no access to institutional finance, RBI had created the framework of priority sector lending with mandated targets.