Treat foreign, domestic banks on par for priority loans: RBI group

Retain 40% target for priority sector loans, introduce PSL certificate, group says

An internal panel of the Reserve Bank of India (RBI) has advised that the 40 per cent target for priority sector lending (PSL) be retained for all banks, including foreign ones.

The recommendations, issued on Monday, say foreign banks with 20 and more branches may be given time till March 2018. They should present revised action plans to the regulator.

Those with less than 20 branches may be given time up to March 2020.

There is continued need for making credit available to various priority sectors on the grounds of growth and equity. So, the target for lending to the redefined priority sector may be retained at 40 per cent of adjusted net bank credit (ANBC) or credit equivalent of off-balance sheet exposure, whichever is higher.

The economy has changed since these lending guidelines were conceived. There is a need to reorient towards today’s growth and inclusion agenda, it said.

The panel, headed by Lily Vaders, chief general manager, says RBI should retain the 18 per cent target for agriculture, with a sub-target of eight per cent of ANBC for small and marginal farmers, to be achieved in a phased manner.

Banks should get more flexibility to lend the remaining 10 per cent of the overall agricultural loan target to other farmers, agricultural infrastructure and ancillary activities, it said. It did not recommend any cap on loan limits.

In addition to micro and small enterprises, medium enterprises are included within the ambit of PSL. To ensure micro enterprises are not crowded out, a sub-target of 7.5 per cent for these. In addition, loans to sanitation, health care, drinking water facilities and renewable energy will come under the priority sector ambit, as will incremental loans to exports, with certain ceilings.

PSL certificates should be introduced to enable banks to meet these requirements even while leveraging their comparative advantage in lending, it added.

KEY CHANGES PROPOSED IN PRIORITY SECTOR LENDING RULES

• To enhance credit to small and marginal farmers, a separate sub-limit of up to 8 per cent is being introduced for the first time
  

 

Loans for agri-processing and agri-infrastructure would be included in priority sector lending (PSL) without any limit on the size of loans
 

Loans to medium enterprises being included in PSL
 

Renewable energy sector is being added to the PSL, up to loans of Rs 10 crore
 

Progress to be monitored quarterly and not at the end of the year