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Full Text of 2nd Quarter Review of Monetary Policy 2011-12 click here

Second Quarter Review of the Monetary Policy for 2011-12
-Announced on the 25th October 2011

Part B. Developmental and Regulatory Policies

IV. Credit Delivery and Financial Inclusion

Branch Authorisation Policy -


77. Considering the requirement of penetration of banking in rural and semi-urban areas, domestic scheduled commercial banks [excluding regional rural banks (RRBs)] were permitted in December 2009 to open branches in Tier 3 to Tier 6 centres (with population up to 49,999 as per Census 2001) and in the rural, semi-urban and urban centres in North-Eastern States and Sikkim under general permission, subject to reporting. They were further mandated in July 2011 to allocate at least 25 per cent of the total number of branches proposed to be opened during a year in unbanked rural centres (Tier 5 and Tier 6 i.e., population up to 9,999 as per Census 2001), so as to meet the targets set out for providing banking services in villages with population over 2,000 by March 2012, and thereafter progressively to all villages over a period of time. However, prior authorisation from the Reserve Bank is required for opening of branches in Tier 1 and Tier 2 centres, except in the case of North-Eastern States and Sikkim where general permission has been granted.

78. These initiatives have led to increased pace in the number of branches opened in Tier 3 to Tier 6 centres.

However, it is observed that branch expansion in Tier 2 centres has not taken place at the desired pace. To provide enhanced banking services in Tier 2 centres, it is proposed:

to permit domestic scheduled commercial banks (other than RRBs) to open branches in Tier 2 centres (with population 50,000 to 99,999 as per Census 2001) without the need to take permission from the Reserve Bank in each case, subject to reporting.

79. The opening of branches by domestic scheduled commercial banks (other than RRBs) in Tier 1 centres (centres with population of 1,00,000 and above as per Census 2001) will continue to require prior permission of the Reserve Bank. While issuing such authorisation, the Reserve Bank will continue to factor in, among others, whether at least 25 per cent of the total number of branches to be opened during a year are proposed to be opened in unbanked rural centres.

80. Detailed guidelines in this regard will be issued separately.

Redefining the Priority Sector

81. Based on the Malegam Committee’s recommendations, and as proposed in the Monetary Policy Statement of May 2011, the Reserve Bank set up a Committee (Chairman: Shri M. V. Nair) to re-examine the existing classification and suggest revised guidelines with regard to priority sector lending classification and related issues. The terms of reference of the Committee include revising the current eligibility criteria for classification of bank loans as priority sector; review of the definition of direct and indirect priority sector finance; classification of bank lending through financial intermediaries as priority sector lending; and the consideration of capping interest rate on loans under the eligible categories of the priority sector. The Committee first met on September 29, 2011 and it will submit its report within four months from that date.

Credit Flow to the Micro, Small and Medium Enterprises Sector

82. Based on the recommendations of the High Level Task Force on the micro, small and medium enterprises (MSMEs), the Reserve Bank issued guidelines in June 2010, advising scheduled commercial banks that the allocation of 60 per cent of micro and small enterprises (MSEs) advances to micro enterprises was to be achieved in stages, viz., 50 per cent in the year 2010-11, 55 per cent in the year 2011-12 and 60 per cent in the year 2012-13. Banks were also mandated to achieve a 10 per cent annual growth in the number of micro enterprise accounts and a 20 per cent year-on-year growth in credit to the MSE sector. The Reserve Bank has been closely monitoring the achievement of targets by banks on a half-yearly basis. The last review of the achievement of targets was done as on March 2011. It has been observed that 27 banks (10 public sector banks, 7 private sector banks and 10 foreign banks) have attained the target of 50 per cent advances to the micro enterprises, and another 27 banks (9 public sector banks, 12 private sector banks and 6 foreign banks) have attained the target of 10 per cent growth in the number of micro enterprises. Similarly, 38 banks (22 public sector banks, 11 private sector banks and 5 foreign banks) have attained the target of 20 per cent growth in credit to the MSE sector. Meetings were held with all those banks which lagged behind in achieving the targets to agree on a plan of action for meeting the targets. The frequency of monitoring has been changed from half-yearly to quarterly with effect from the quarter ended June 2011.

Rural Credit Institutions

Licensing of Co-operatives

83. In terms of the recommendations of the Committee on Financial Sector Assessment (Chairman: Dr. Rakesh Mohan and Co-Chairman: Shri Ashok Chawla), and as proposed in the Annual Policy Statement of April 2009, the work relating to licensing of unlicensed state and central co-operative banks in a non-disruptive manner, in consultation with National Bank for Agriculture and Rural Development (NABARD), has been initiated. Subsequent to the issuance of revised guidelines on licensing of state co-operative banks (StCBs)/district central co-operative banks (DCCBs), 10 StCBs and 169 DCCBs were licensed, bringing down the number of unlicensed StCBs from 17 to 7 and unlicensed DCCBs from 296 to 127 by end-August 31, 2011.

Revival of the Rural Co-operative Credit Structure

84. The Government of India, based on the recommendations of the Task Force on Revival of Rural Co-operative Credit Institutions (Chairman: Prof. A. Vaidyanathan) and in consultation with the State Governments, had approved a package for revival of the short-term rural co-operative credit structure. As envisaged in the package, 25 States have entered into memorandum of understanding (MoU) with the Government of India and NABARD and 21 States have amended their respective State Co-operative Societies Acts. As on July 31, 2011, an aggregate amount of `9,000 crore was released by NABARD for recapitalisation of primary agricultural credit societies (PACS) in 16 States as the Government of India’s share under the revival package and as part of the operationalisation of the recommendations of the Vaidyanathan Committee.

Roadmap for Provision of Banking Services in Villages with Population of over 2000

85. In pursuance of the announcement made in the Monetary Policy Statement of April 2010, a roadmap to provide banking services in every village with a population of over 2000 was finalised by the state level bankers’ committees (SLBCs). In all, 74,386 villages as per 2001 Census have been identified. They have been allotted to various banks for provision of banking services by March 2012. Banking outlets have been opened in 32,144 villages across various States in the country. Of these, 809 villages are covered through branches, 30,882 villages through branchless banking, i.e., business correspondents (BCs) and 453 through other modes like automated teller machines (ATMs), mobile vans, etc., constituting 43 per cent of the target. Of the total 32,144 banking outlets opened, public sector banks hold 85 per cent share, followed by RRBs with 12 per cent and private sector banks with 3 per cent.

>>> GO TO PAGE 2

Second Quarter Review of Monetary Policy 2011-2012... click here

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