The Reserve Bank of India (RBI) has revamped priority sector lending (PSL) norms. Now, loans to sectors such as social infrastructure, renewable energy and medium enterprises will also be treated as PSL.
While retaining the 40 per cent PSL target for domestic banks, the distinction between direct and indirect agriculture has been done away with. This means banks can meet their entire agriculture lending target - 18 per cent of their net loans disbursed in the previous year - by funding to indirect agriculture, which includes loans to companies engaged in the agriculture sector.
Direct agriculture refers to individual farmers or groups directly engaged in agriculture and allied activities. Now, food and agro processing units will form part of agriculture.
Loans to build agriculture infrastructure such as storage, as well as those for soil conservation and watershed development, will now be considered farm lending. Loans for ancillary activities such as setting up agro clinics and agribusiness centres will also be part of farm lending.
For small and marginal farmers, banks have to mandatorily extend eight per cent of their overall loans. Lenders will be allowed to achieve the target in a phased manner - seven per cent by March 2016 and eight per cent by March 2017. A target of 7.5 per cent has been set for micro enterprises.
For foreign banks with more than 20 branches in India, the sub-targets for small and marginal farmers and micro enterprises will be made applicable after 2018. Large foreign banks have been asked to meet the PSL targets - on a par with domestic banks - by 2018. The targets for small foreign banks will be brought on a par with those for domestic banks by 2020, in a phased manner.
"Foreign banks with less than 20 branches will move to the total priority sector target of 40 per cent by 2019-20, and the sub-targets for these banks, if to be made applicable post 2020, would be decided in due course," RBI said in a notification.
Providing some relief to smaller foreign banks, export credit up to 32 per cent will be eligible.
"Bank loans up to Rs 5 crore a borrower for building social infrastructure for activities - schools, health care facilities, drinking water facilities and sanitation facilities will be provided in tier-II to tier-VI centres," added the notification, which comes with immediate effect.
In the renewable energy segment, bank loans of up to Rs 15 crore for solar-based power generators, biomass-based power generators, wind mills, micro-hydel plants, etc, will be considered part of PSL. For individual households, the loan limit will be Rs 10,00,000 a borrower.
On the home finance front, loans of up to Rs 28 lakh to individuals in metropolitan centres and up to Rs 20 lakh in other centres will qualify as PSL, provided the overall cost of the dwelling unit is Rs 35 lakh in the metropolitan centres and Rs 25 lakh in other centres.
RBI has clarified as housing loans backed by long-term bonds are exempted from the PSL mandate, banks should either include such loans under priority sector or take the benefit of exemption from PSL, but not both. This means if a bank categorises a home loan under PSL, it won't get exemption in terms of cash reserve ratio (CRR) and statutory liquidity ratio (SLR). For resources raised through long-term bonds to fund affordable housing or infrastructure projects, RBI had exempted banks for maintaining CRR, SLR and PSL.
Banks will also be allowed to issue PSL certificates to other lenders to make good shortfalls in meeting PSL targets.
Bank advances to microfinance institutions (MFIs) for lending to individuals, members of self-help groups and joint liability groups will also qualify as PSL, provided the MFIs meet the norms prescribed for micro lending (loan pricing, amount, etc). Every quarter, MFIs have to furnish certificates from a chartered accountant, stating these guidelines have been followed.