Targets for larger foreign banks to be brought on a par with domestic ones

Foreign banks having 20 or more branches in India will be brought on a par with domestic banks for fulfilling priority sector lending targets in a phased manner.

They will have to achieve the target over a maximum period of five years starting April 1, 2013, according to Reserve Bank of India’s revised guidelines on priority sector lending (PSL).

These banks will be required to submit an action plan for achieving the targets over a specific timeframe to be approved by the RBI. The PSL target for Indian banks is set at 40 per cent of their adjusted net bank credit.

Priority sector loans are small-value loans to farmers for agriculture and allied activities, micro and small enterprises, poor people for housing, students for education and other low-income groups and weaker sections.

Foreign banks with less than 20 branches will have no sub-targets within the overall priority sector lending target of 32 per cent. This is expected to allow them to lend as per their core competence to any priority sector category.

In the revised guidelines, the central bank kept the PSL target unchanged at 40 per cent. It revised the list of services which will be classified as priority sector.

Now, housing loans of up to Rs 25 lakh in metropolitan cities and Rs 15 lakh in other centres will be classified as priority sector lending.

Education loans

Educational loan of up to Rs 10 lakh for courses in India and Rs 20 lakh for courses abroad will also come under priority sector lending.

It may be noted that banks were struggling to meet their priority sector lending targets.

Bank lending to farmers who are caught in the web of moneylenders and other non-institutional organisations will also be classified as priority sector lending. Loans to individuals other than farmers up to Rs 50,000 to prepay their debt to non-institutional lenders will also be eligible for PSL under the revised guidelines.

Loans to food and agro-processing units, for housing projects for economically weaker sections and low-income groups up to Rs 5 lakh and loans to State Sponsored Organisations for Scheduled Castes and Scheduled Tribes will also form the priority sector lending criterion for banks.

In an effort to boost green energy, the central bank suggested that loans to individuals for setting up of off-grid solar and other off-grid renewable energy solutions for households be tagged under priority sector lending. Loans to micro and small service enterprises up to Rs 1 crore and all loans to micro and small manufacturing enterprises will also be classified as priority sector loans.

satyanarayan.iyer@thehindu.co.in

(This article was published on July 20, 2012)
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