In a bid to address the regional disparities in the flow of priority sector credit, the Reserve Bank of India has for the first time put in place an incentive framework under which banks will be encouraged to lend in districts that have been identified as credit deficient. There are 184 districts across the country with a per capita priority sector lending of less than ₹6,000.

The RBI has decided to bring in an “incentive-disincentive” framework for banks from FY2022 onwards as part of its revised priority sector lending (PSL) guidelines.

According to the revised guidelines, the targets prescribed for lending to small and marginal farmers (SMFs) and “weaker sections” will be increased in a phased manner. In a bid to give a fillip to start-ups, loans up to ₹50 crore given by banks to them will be classified as PSL.

The carrot

The RBI said that from 2021-22, a higher weight (125 per cent) would be assigned to the incremental priority sector credit in the 184 identified districts where the credit flow is comparatively low.

A lower weight (90 per cent) would be assigned for incremental priority sector credit in the 205 identified districts where the credit flow is comparatively higher (per capita PSL greater than ₹25,000).

What this means is that if a bank gives ₹100 incremental priority sector credit in the districts where the credit flow is comparatively low, it will be considered as ₹125 and accordingly provisioning and capital benefit will be available.

“We believe that this is an ideal example of policy federalism adopted by the RBI in promoting financial and social inclusion in line with the Central Government’s agenda of providing financial inclusion to backward districts in the country,” said Soumya Kanti Ghosh, Group Chief Economic Adviser, State Bank of India, in a report.

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Small, marginal farmers

According to the revised targets for lending to SMFs (within the overall 40 per cent PSL target), banks (excluding urban co-operative banks) will need to step up loans to this segment in a phased manner from 8 per cent in FY21 to 10 per cent by FY24.

Small farmers are those with a landholding of 1 hectare and up to 2 hectares, while and marginal ryots are those holding up to 1 hectare.

The lending target for weaker sections for domestic commercial banks and small finance banks goes up in a phased manner from 10 per cent in FY21 to 12 per cent in FY24.

Clean energy, health infra

Under the revised PSL guidelines, loan limits for renewable energy projects have been doubled to ₹30 crore. For individual households, the renewable energy loan limit will be ₹10 lakh per borrower.

For improvement of health infrastructure, credit limit for health infrastructure (including those under Ayushman Bharat) has been doubled to ₹10 crore in Tier II to Tier VI centres.

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