Money & Banking

Banks want sub-sectors under priority lending rejigged

Satyanarayan Iyer Mumbai | Updated on January 24, 2018

Bankers have sought a re-jig of the sub-sectors within priority sector lending to enable banks achieve their annual lending target of 40 per cent of the total credit comfortably.

At the two-day retreat in Pune recently, bankers discussed ways and methods to make priority sector lending (PSL) more contemporary. Priority sector lending is mandated for banks so that they lend to critical sectors such as agriculture, micro and small enterprises, education, and low-cost housing.

Currently, this figure stands at 40 per cent of total credit for banks, with sub-targets for each of the sub-sectors. Agriculture sector, for instance, has to be given 18 per cent of the total credit extended by banks. In case banks are not able to meet their targets by the end of the financial year, they are required to deposit the shortfall with the National Bank for Agriculture and Rural Development (Nabard). Nabard has a separate fund called the Rural Infrastructure Development Fund, through which it funds infrastructure development in rural areas.

Alternatively, banks can also purchase the short-fall in their PSL targets from third parties such as non-banking finance companies that deal exclusively in financing such products. A senior official privy to the meeting said, the government is looking to expand the ambit of priority sector advances. For instance, bankers have asked the government for more lee-way in funding low-cost housing as there is more demand in this sub-segment. Bankers said the sectors which are more “aspirational” (like housing) must be given more weightage under the priority sector lending norms. This will, however, not come at the cost of agriculture lending, the official said.

The government said it will look into the bankers’ recommendations. As of now, there is no commitment from the government’s side, the official said.

Published on January 05, 2015

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