Revised Guidelines for Priority Sector Lending by Banks : Banknet India

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Banks to increase financing of priority sectors- November 2006

The banking system’s priority sector lending obligation is set to increase with the Reserve Bank of India (RBI) expanding the base for calculating the level of directed lending as per the revised draft guidelines issued on the 8th November 2006.

The priority sector lending target and sub-targets for all banks would now be linked to Adjusted Net Bank Credit (Net Bank Credit plus investments made by banks in non-SLR bonds held in HTM category) or Credit Equivalent of Off-Balance Sheet Exposures, whichever is higher, as on March 31 of the previous year. For this purpose, outstanding FCNR (B) and NRNR deposits balances will no longer be deducted for computation of Net Bank Credit for priority sector lending purposes.

In order to encourage banks to increasingly lend directly to the priority sector borrowers, the banks' deposits placed with NABARD/SIDBI on account of non-achievement of priority sector lending targets would not be eligible for classification as indirect finance to agriculture/SSI, as the case may be.

As per the revised draft guidelines issued by RBI on 8th November 2006, the priority sector will broadly comprise agriculture, small scale industries, small business/service enterprises, micro credit, education loans and housing loans.

It has been decided to include only those sectors that impact large segments of population & the weaker sections, and which are employment-intensive, as part of the priority sector. It will take into account the revised definition of small and micro enterprises as per the Micro, Small and Medium Enterprises Development Act, 2006.

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