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Our Bureau

Draft RBI norms on priority lending

Chennai , Jan. 16

Banks can lend more under educational loans, under the draft guidelines on priority sector issued by the Reserve Bank of India. Banks can now grant up to Rs 10 lakh to individuals for studies in India and up to Rs 20 lakh for studies abroad. The earlier limits were Rs 7.5 lakh and Rs 15 lakh respectively.

Banks are required, under current guidelines of the RBI, to direct 40 per cent of their loans to "priority sector". Priority sector includes loans given to agriculture, small-scale enterprises, micro credit, housing loans (less than Rs 15 lakhs), besides weaker sections of society among other categories. There are sub-targets fixed under each of these categories.

Loans for agriculture

For instance, banks are expected to direct at least 18 per cent of their loans to agriculture (under the overall limit of 40 per cent). In the case of foreign banks, in view of their lack of rural branches, they are expected to only lend 32 per cent of their loans to priority sector. In their case, they have been given a sub-target of 10 per cent for export credit.

The draft guidelines will have the effect of increasing bank credit to priority sector, since there has been a change in the definition of "adjusted net bank credit". This would now include bank investments in non-SLR bonds in the (held to maturity category). Alternatively, the credit equivalent of off-balance sheet exposures, whichever is higher, will be included in the limits to compute the 40 per cent figure.

According to bankers, this measure is expected to impact private and foreign banks more than public sector banks. Almost all banks have generally been able to meet the priority sector targets, although not the individual sub-targets under agriculture. For instance, as of March 2006, public sector banks lent Rs 4,10,379 crore representing 40.3 per cent of their net bank credit. However, their agricultural advances of Rs 1,54,900 crore represented only 15.2 pre cent of their net credit (as against the 18 per cent target). In the same period, private banks too managed the overall target by disbursing Rs 1,06,566 crore to priority sectors constituting 42.8 per cent of net credit. However, they fell woefully short on agricultural credit at just Rs 36,185 crore, representing 13.5 per cent of net bank credit.

More Stories on : Education | Credit Market | Financial Policy | RBI & Other Central Banks

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