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PRIORITY SECTOR LENDING

PRIORITY SECTOR LENDING. S THOMAS PUNNOOSE MEMBER OF FACULTY RBI, CAB, PUNE. Lending to the Priority Sector. BANK. Financial Intermediation. Operational Efficiency. Allocational Efficiency. Sectoral composition of GDP. percent.

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PRIORITY SECTOR LENDING

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  1. PRIORITY SECTOR LENDING S THOMAS PUNNOOSE MEMBER OF FACULTY RBI, CAB, PUNE

  2. Lending to the Priority Sector BANK Financial Intermediation Operational Efficiency Allocational Efficiency

  3. Sectoral composition of GDP percent

  4. Outstanding Credit of Scheduled Commercial Banks (according to occupation) percent

  5. New Priority Sector Guidelines – Basic Philosophy • Viable and creditworthy sectors that may not get timely and adequate credit • Not a Corporate Social Responsibility but a normal business operation for banks • Lending directly through beneficiaries instead of routing them through intermediaries • Create innovative structures, products and processes

  6. Priority Sector Classification - Wrong notions • Priority Sector guidelines are aimed at helping banks attain the targets • If a sector is not classified as priority sector, it will not get bank credit

  7. Categories under Priority Sector 7 7 • Agriculture 2. Micro & Small enterprises 3. Education 4. Housing 5. Export Credit 6. Others

  8. Targets and Sub-Targets for Priority Sector 8

  9. 9 9

  10. Targets/Sub-Targets under Priority Sector 10 10 • For foreign banks with 20 and above branches, priority sector targets and sub-targets to be achieved within a maximum period of five years starting from April 1, 2013 and ending on March 31, 2018 • They are to submit an action plan latest by December 31, 2012 for achieving the targets, to be approved by RBI

  11. Computation of ANBC Banks should not deduct / net any amount like provisions, accrued interest etc from NBC 11 11

  12. AGRICULTURE Agricultural Credit Target fixed by the Government of India for 2012-13 is Rs.5,75,000 crore 12

  13. Direct Agriculture Loans to individual farmers (including groups of individual farmers) engaged in Agriculture and Allied Activities (dairy, fishery, animal husbandry, poultry, bee-keeping and sericulture) Short-term loans for raising crops (will include traditional / non-traditional plantations, horticulture and allied activities) Medium & Long-term loans to farmers for agriculture & allied activities (purchase of agricultural implements and machinery, loans for irrigation and other developmental activities undertaken in the farm and development loans for allied activities) 13 13

  14. Direct Agriculture: Loans to Farmers for pre-harvest and post-harvest activities viz., spraying, weeding, harvesting, sorting, grading and transporting of their own farm produce. Farmers upto Rs.25 lakh against pledge / hypothecation of agricultural produce, for a period not exceeding 12 months Small & Marginal Farmers for purchase of land for agricultural purposes 14 14

  15. Direct Agriculture: Loans to Distressed farmers indebted to non-institutional lenders Bank loans to PACS, Farmers’ Service Societies and Large-sized Adivasi Multi Purpose Societies ceded to or managed / controlled by such banks for on-lending to farmers for agriculture/allied activities Loans to farmers under KCC Scheme Export credit to farmers 15 15

  16. Direct Agriculture Loans to corporates, including farmers’ producer companies of individual farmers partnership firms and cooperatives of farmers directly engaged in Agriculture and Allied Activities (dairy, fishery, animal husbandry, poultry, bee-keeping and sericulture) upto an aggregate limit of Rs.2 crore Short-term loans for raising crops (will include traditional / non-traditional plantations, horticulture and allied activities) Medium & Long-term loans for agriculture & allied activities (purchase of agricultural implements and machinery, loans for irrigation and other developmental activities undertaken in the farm and development loans for allied activities) 16 16

  17. Indirect Agriculture: Loans for Pre-harvest and post-harvest activities viz., spraying, weeding, harvesting, sorting and grading Upto Rs.25 lakh against pledge / hypothecation of agricultural produce, for a period not exceeding 12 months Export credit to corporates, partnership firms and institutions for exporting their own farm produce 17 17

  18. Indirect Agriculture: Loans to Loans upto Rs5 crore to Producer Companies set up exclusively by only small and marginal farmers, for agricultural and allied activities Bank loans to PACS, Farmers’ Service Societies and Large-sized Adivasi Multi Purpose Societies other than those covered under direct agriculture 18 18

  19. Other Indirect Agriculture Loans Loans upto Rs.1 crore per borrower to dealers / sellers of fertilizers, pesticides, seeds, cattle feed poultry feed, agricultural implements & other inputs Loans for setting up of Agriclinics and Agribusiness Centres Loans upto Rs.5 crore to cooperative societies of farmers for disposing of the produce of members 19 19

  20. Other Indirect Agriculture: Loans to Custom Service units managed by individuals / institutions / organizations who maintain a fleet of tractors/bulldozer/well-boring equipment/threshers etc and undertake farm work for farmers on contract basis Loans for construction & running of storage facilities (warehouse, market yards, godowns & silos) including cold storage units designed to store agriculture produce/products irrespective of their location 20 20

  21. Other Indirect Agriculture: Loans to MFIs for on-lending to farmers for agriculture and allied activities as per the following conditions: - Not less than 85% of total assets of the MFI (other than cash, balances with banks and FI, government securities and money market instruments) are in the nature of qualifying assets. - In addition, aggregate amount of loan, extended for income generating activity is not less than 75% of the total loans given by MFIs 21 21

  22. Other Indirect Agriculture: Loans to MFIs for on-lending to farmers for agriculture and allied activities as per the following conditions (contd…..): - Further, banks have to ensure that MFIs comply with caps on margin and interest rates as also other pricing guidelines to be eligible to classify these loans as priority sector - Banks should obtain from MFI at the end of each quarter a CA’s certificate 22 22

  23. Qualifying Assets – means a loan disbursed by MFI satisfying the following conditions: Loan is to be extended to a borrower whose household annual income is not > Rs.60,000 (rural) and Rs.1,20,000 (non-rural areas) Loan does not exceed Rs.35,000 in the 1st cycle and Rs.50,000 in subsequent cycles Total indebtedness of the borrower does not exceed Rs.50,000 Tenure of the loan is not less than 24 months when loan exceeds Rs.15,000 with right to borrower of prepayment without penalty\ The loan is without collateral Loan is repayable by weekly, fortnightly or monthly installments at the choice of the borrower 23 23

  24. Caps on Margin / Interest rates / pricing Margin cap at 12% for all MFIs. The interest cost is to be calculated on average fortnightly balances of outstanding borrowings and interest income is to be calculated on average fortnightly balances of outstanding loan portfolio of qualifying assets Interest cap on individual loans at 26% per annum for all MFIs to be calculated on a reducing balance basis Only 3 components to be included in pricing of loans viz., processing fee not > 1% of gross loan amount, interest charge & insurance premium Processing fee not to be included in margin cap or interest cap of 26% There should be no penalty for delayed payment No Security Deposit / Margin are to be taken 24 24

  25. CA’s Certificate should state that: 85% of the total assets of the MFI are in the nature of “qualifying assets” The aggregate amount of loan, extended for income generation activity is not less than 75% of the total loans given by the MFI Pricing guidelines are followed 25 25

  26. Other Indirect Agriculture: Loans to NGOs which are SHG Promoting institutions for on-lending to members of SHGs under SHG-Bank Linkage Programme for agricultural and allied activities. The all inclusive interest rate charged by the NGO / SHG promoting entity should not exceed the Base Rate of the lending bank plus 8% per annum Loans sanctioned to RRBs for on-lending to agriculture and allied activities 26 26

  27. MICRO and SMALL ENTERPRISES 27

  28. Micro & Small Enterprises MSEs include Manufacturing Enterprises: Micro enterprises – Investment in plant & machinery does not exceed Rs 25 lakh irrespective of the location Small enterprises – Investment more than Rs.25 lakh but does not exceed Rs 5 crore Service Enterprises: Micro enterprises - Investment in equipment not exceeding Rs 10 lakh Small (service) enterprises - Investment in equipment is more than Rs.10lakh but does not exceed Rs 2 crore. 28 28

  29. Micro & Small Enterprises Bank loans to micro and small enterprises (both manufacturing and service) are eligible to be classified under PS. The small and micro (service) enterprises include small road & water transport operators small business professional & self-employed persons Retail trade Consultancy services 29 29

  30. MSE – Direct Finance Manufacturing Enterprises: MSEs engaged in the manufacture/production of goods to any industry specified in the 1st Schedule to Industries (Development & Regulation) Act, 1951 - Loans for food and agro processing Service Enterprises: - Bank loans upto Rs.2 crore per unit to MSE engaged in providing or rendering of services Export credit to MSE units: for exporting of goods/services Khadi and Village Industries Sectors: all loans sanctioned to units in the KVI sector irrespective of size of operations, location and amount of original investment in P&M 30 30

  31. MSE – Indirect Finance Loans to persons involved in assisting the decentralized sector in the supply of inputs to and marketing of outputs of artisans, village and cottage industries Loans to cooperatives of producers in the decentralized sector viz., artisans, village and cottage industries Loans sanctioned by banks to MFIs for on-lending to MSE sector as per conditions specified earlier 31 31

  32. EDUCATION 32

  33. Education loans Loans granted to individuals for educational purposes including vocational courses upto Rs. 10 lakh for studies in India and Rs. 20 lakh for studies abroad. 33 33

  34. HOUSING 34

  35. Housing loans Loans to individuals upto Rs.25 lakh in metropolitan centres with population > ten lakh & Rs.15 lakh in other centres for purchase/construction of a dwelling unit per family (excluding loans granted by banks to their own employees). Loans given for repairs to the damaged dwelling units of families up to Rs. 2 lakh in rural and semi-urban areas and up to Rs. 5 lakh in urban and metropolitan areas 35 35

  36. Housing loans Bank loans to any governmental agency for construction of dwelling units / slum clearance and rehabilitation of slum dwellers, subject to a ceiling of Rs.10 lakh per dwelling unit. Loans sanctioned by banks for housing projects exclusively for the purpose of construction of houses only to economically weaker sections and LIGs the total cost of which is not > Rs. 10 lakh per dwelling unit. (family income limit Rs.1.20 lakh per annum irrespective of location) 36 36

  37. Housing loans Bank loans to HFCs, approved by NHB for their refinance, for onlending for the purpose of purchase/construction/reconstruction of individual dwelling units or for slum clearance and rehabilitation of slum dwellers, subject to a ceiling of Rs.10 lakh per dwelling unit. The all inclusive interest rate charged to the ultimate borrower should not exceed the lowest lending rate of the lending bank for HLs + 2% per annum 37 37

  38. Housing loans Eligibility under priority sector loans to HFCs is restricted to 5% of the bank’s total PS lending, on an ongoing basis. The maturity of bank loans should be co-terminus with average maturity of loans extended by HFCs. Banks should maintain necessary borrower-wise details of the underlying portfolio. 38 38

  39. EXPORT CREDIT 39

  40. Export Credit Extended by foreign banks with less than 20 branches will be reckoned for priority sector target achievement As regards domestic banks and foreign banks (with 20 and above branches), export credit is not a separate category under priority sector Export credit towards categories of priority sector i.e. agriculture and MSE sector will however be accounted 40 40

  41. Others 41

  42. Others: Loans not exceeding Rs.50,000/- per borrower provided directly by banks to individuals and their SHG / JLG (provided borrower’s household annual income does not exceed Rs.60,000/- in rural areas and Rs.1,20,000/- in non-rural areas) Loans to distressed persons (other than farmers-already included) not > Rs.50,000/- per borrower to prepay their debt to non-institutional lenders Loans outstanding under loans for general purposes under GCC 42 42

  43. Others: Overdrafts upto Rs.50,000 (per account) granted against ‘no-frills’ accounts (provided borrower’s household annual income is not > Rs.60,000/- in rural areas & Rs.1,20,000/- in non-rural areas) Loans sanctioned to State Sponsored Organizations for SCs / STs for the specific purpose of purchase and supply of inputs to and/or the marketing of the outputs of the beneficiaries of these organizations Loans sanctioned by banks directly to individuals for setting up of off-grid solar and other off-grid renewable energy solutions for households 43 43

  44. Weaker Sections 44

  45. Weaker Sections Category Small (landholding more than 1 hectare but less than 2 hectares) and Marginal farmers (landholding upto 1 hectare) Artisans, village and cottage industries where credit limits do not exceed Rs.50,000. Beneficiaries of SGSY Scheduled Castes and Scheduled Tribes Beneficiaries of DRI Scheme Beneficiaries of SJSRY Beneficiaries under the SRMS 45 45

  46. Weaker Sections Category Loans to SHGs Loans to distressed farmers indebted to non-institutional lenders Loans to distressed persons (other than farmers) not exceeding Rs.50,000 per borrower to prepay their debt to non-institutional lenders Loans to individual women beneficiaries upto Rs.50,000 per borrower Loans sanctioned to persons from minority community 46 46

  47. Management Information System 47

  48. Significance of MIS A robust MIS is a prerequisite for - effective monitoring of performance - understanding the gaps - formulating the right policy responses Processing of data into useful information for MIS and decision support systems in individual banks as well as at the aggregate level is important 48 48

  49. Existing Framework of MIS 49 49

  50. Returns presently furnished by banks 50 50

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