The Hindu Business Line : RBI move to raise priority sector funding

A RBI circular issued on Wednesday says, "the targets and sub-targets under priority sector lending would be linked to adjusted net bank credit (net bank credit plus investments made by banks in non-SLR bonds held in Held to Maturity category) or credit equivalent of off-balance sheet exposures, whichever is higher, as on March 31 of the previous year."

Earlier, the 40 per cent norm was linked to net bank credit only. By tagging non-SLR bonds and off-balance sheet exposures, banks may have to lend more to agriculture, micro credit, small scale and micro enterprises.

Total priority sector advances remain at 40 per cent and 32 per cent for domestic and foreign banks, respectively.

Investment by banks in securitised assets, representing loans to agriculture (direct or indirect), small-scale industries and housing, shall come under priority sector credit.

The RBI has excluded banks' deposits with Nabard and SIDBI for non-achievement of priority sector lending targets from being counted as indirect finance to the farm and SSI sectors.

Agricultural loans

Banks can now disburse all loans for agricultural purposes in cash. Repayment schedules will have to take into account the "sustenance requirements, surplus generating capacity, the break-even point and the life of the asset and not in an "ad hoc" manner. This means that banks will have to take into account the financial strength of the common farmer rather than arbitrarily fixing norms for loan repayment.

Essentially, bankers will have to be more human, a tough task indeed, say banking sources. For composite loans, repayment schedules may be fixed for the term loan component only. No service or inspection charges can be levied on priority sector loans up to Rs 25,000. The interest rates on loans will go by the RBI rulings as at present. Domestic banks not sticking to the 40 per cent target shall be allocated amounts for contribution to the Rural Infrastructure Development Fund.

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