Reserve Bank of India (RBI) amends priority sector lending norms

October 17, 2012:

The Reserve Bank of India has expanded the priority sector lending in agriculture, housing and small and medium enterprises to widen the scope loans to these sectors.

Under priority sector norms, banks need to set aside 40% of their total credit to agriculture, exports, microlending and other weak economic sections. Failure to meet this target force banks to invest in the Rural Infrastructure Development Fund maintained by the National Bank for Agriculture and Rural Development.



1. Agriculture

1.1 Direct Agriculture

Bank loans to following entities would also qualify for lending to direct agriculture:-

Loans to corporates including farmers' producer companies of individual farmers, partnership firms and co-operatives of farmers directly engaged in Agriculture and Allied Activities, viz., dairy, fishery, animal husbandry, poultry, bee-keeping and sericulture (up to cocoon stage) up to an aggregate limit of Rs 2 crore per borrower for the following purposes.

(i) Short-term loans for raising crops, i.e. for crop loans. This will include traditional/non-traditional plantations, horticulture and allied activities.

(ii) Medium & long-term loans for agriculture and allied activities (e.g. purchase of agricultural implements and machinery, loans for irrigation and other developmental activities undertaken in the farm, and development loans for allied activities).

(iii) Loans for pre-harvest and post-harvest activities, viz., spraying, weeding, harvesting, grading and sorting.

(iv) Export credit for exporting their own farm produce.



1.2 Indirect Agriculture

If the aggregate loan limit per borrower is more than Rs2 crore in respect of para 1.1 above, the entire loan should be treated as indirect finance to agriculture.

2. Micro and Small Enterprises (Service Sector)

Bank loans to Micro and Small Enterprises (MSE) engaged in providing or rendering of services will be eligible for classification as direct finance to MSE Sector under priority sector upto an aggregate loan limit of Rs2 crore per borrower/unit, provided they satisfy the investment criteria for equipment as defined under MSMED Act, 2006.

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