Credit Delivery Mechanism

The Continuity Constant

 (a) Priority Sector Lending

 (i) Credit Facilities for Small Scale Industries

 In the annual policy Statement of April 2002, the loan limit for dispensation of collateral requirement was increased from Rs.5 lakh to Rs.15 lakh. In order to further improve the flow of credit to small scale industries (SSIs), it is proposed that:

 Banks may, on the basis of good track record and the financial position of the SSI units, increase the loan limit from Rs.15 lakh up to Rs.25 lakh (with the approval of their Boards) for dispensation of collateral requirement.

 (ii) Deposits of Foreign Banks with SIDBI

 At present, foreign banks are required to deposit an amount equivalent to the shortfall in their priority sector target with Small Industries Development Bank of India (SIDBI) at an interest rate of 6.75 per cent. In order to increase the flow of credit to SSIs and to rationalise the interest rates, it is proposed that:

 The interest rate on the deposits of foreign banks placed with SIDBI towards their priority sector shortfall will be at the Bank Rate.

 SIDBI will take appropriate steps to ensure that priority sector funds are utilised expeditiously and benefits of reductions in interest rates passed on to the borrowers.

 (iii) Lending by Banks to NBFCs

 As indicated in the annual policy Statements of April 1999 and 2000, bank loans to non-banking financial companies (NBFCs) for the purpose of on-lending to agriculture, tiny sector and small road and water transport operators are reckoned under priority sector lending.

 On a suggestion from a Chamber of Commerce, and with a view to further enhancing the credit flow to SSI sector, it is proposed that: All new loans granted by banks to NBFCs for the purpose of on-lending to SSI sector would also be reckoned under priority sector lending.