Priority Sector Lending

Priority Sector Lending

Priority Sector means those sectors which the Government of India and Reserve Bank of India consider as important for the development of the basic needs of the country and are to be given priority over other sectors. The banks are mandated to encourage the growth of such sectors with adequate and timely credit. The Dr K S Krishnaswamy Committee defines that the priority sector involves agriculture finance, education loans, small enterprises, retail trade, micro-credit, and housing loans. Therefore, 2020 RBI has adopted a Priority Sector Lending norm which relaxes the lending norms for poor and small businesses.

Priority sector categories:

  1. Agriculture

4. Education

7. Renewable Energy

2. Micro, Small and Medium Enterprises

5. Housing

8. Start-ups

3. Export Credit

6. Social Infrastructure

9. Others

Categories-1Domestic scheduled commercial banks and Foreign banks with more than 20 branches in India
Total Priority Sector40 per cent of Adjusted Net Bank Credit (ANBC) or Credit Equivalent Amount of Off -Balance Sheet Exposure (CEOBE) whichever is higher.
    Agriculture18 per cent of ANBC or Credit Equivalent Amount of Off-Balance Sheet Exposure, whichever is higher. Within the 18 percent target for agriculture, a target of 8 percent of ANBC or Credit Equivalent Amount of Off-Balance Sheet Exposure, whichever is higher is prescribed for Small and Marginal Farmers.
Micro Enterprises7.5 percent of ANBC or Credit Equivalent Amount of Off-Balance Sheet Exposure, whichever is higher,
Advances to Weaker Sections12 percent of ANBC or Credit Equivalent Amount of Off-Balance Sheet Exposure, whichever is higher (Updated)


Foreign banks with less than 20 branches

Update: Target for Regional Rural Bank and Small Finance Banks

Categories-2Target
Total Priority Sector75 per cent of Adjusted Net Bank Credit
Agriculture18 per cent of ANBC. Within the 18% target for agriculture, and target of 8 percent of ANBC is prescribed for Small and Marginal Farmers.
Micro Enterprises7.5 per cent of ANBC
Advances to Weaker Sections15 percent of ANBC (Updated)

Limits on priority sector lending

SectorLimit for Priority sector lending
  Social infrastructureRs.5 crore per borrower for setting up schools, drinking water facilities and sanitation facilities including construction/ refurbishment of household toilets and water improvements at the household level, etc. Limit of Rs.10 crore per borrower for building health care facilities including under ’Ayushman Bharat’ in Tier II to Tier VI centers. (Updated)
EducationRs. 20 lacs
Renewable energyRs.30 crores (Updated)
ExportsRs.40 crores
Housing loansMetropolitan: Rs.35 lacs (Maximum house value Rs.45 lacs) Other cities: Rs.25 lacs (Maximum house value Rs.30 lacs)

Weaker section categories

  • Small and Marginal Farmers
  • Artisans, village and cottage industries where individual credit limits do not exceed Rs. 0.1 million
  • Beneficiaries under Government Sponsored Schemes such as National Rural Livelihoods Mission (NRLM), National Urban Livelihood Mission (NULM) and Self Employment Scheme for Rehabilitation of Manual Scavengers (SRMS)
  • Scheduled Castes and Scheduled Tribes
  • Beneficiaries of Differential Rate of Interest (DRI) scheme
  • Self Help Groups
  • Distressed farmers indebted to non-institutional lenders
  • Distressed persons other than farmers, with loan amount not exceeding Rs. 0.1 million per borrower to prepay their debt to non-institutional lenders
  • Individual women beneficiaries up to Rs. 0.1 million per borrower
  • Persons with disabilities
  • Overdraft limit to PMJDY account holder upto Rs.10,000/- with age limit of 18-65 years.
    • Minority communities as may be notified by Government of India from time to time.

AGRICULTURE

The lending to agriculture sector INCLUDES:

  • Farm Credit (which  will include short-term crop loans and medium/long-term credit to farmers)
    • Agriculture Infrastructure
    • Ancillary Activities

Loans to Farm Credit

  • Individual farmers (including groups of individual farmers like .SHGs/ JLGs) , and
  • Proprietorship firms of farmers/ corporate etc. directly engaged in Agriculture and Allied Activities (dairy, fishery, animal husbandry, poultry, bee- keeping and sericulture)

Farm Credit (Individual)

  • Crop loans to farmers (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 rlevelopment loans for allied activities)
  • Loans for pre-harvest and post-harvest activities vizp spraying, weeding, harvesting, sorting, grading and transporting of their own farm produce.
  • Loans under the Kisan Credit Card Scheme
  • Loans to distressed farmers indebted to non- institutional lenders
  • Loans to small and marginal farmers for purchase of land for agricultural purposes.
  • Loans against pledge/hypothecation of agricultural produce (including warehouse receipt) for a max. period of 12 months subject to a limit up to %0 lakh.

Loans to

  • Proprietors firms of farmers
  • Corporate farmers,
  • 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 specified limits:
    • Loans upto a limit of Rs. 2 crore per borrower for the following:
      • Crop loans to farmers which will include (traditional / non-traditional plantations, horticulture and loans for allied activities)
      • Medium & Long-term loans for agriculture & allied activities (purchase of agricultural implements and

machinery,

  1. Loans for Pre-harvest and post-harvest activities viz., spraying, weeding, harvesting, sorting, grading and transporting of their own farm produce.
  • Loans upto Rs.50 lakh against pledge / hypothecation of agri. produce (incl. warehouse receipts) for a period not

> 12 months

  • Loans up to Rs. 5 crore per borrowing entity to FPOs/FPCs undertaking farming with assured marketing of their produce at a pre-determined price.
    • UCBs are not permitted to lend to co-operatives of farmers.

Agriculture Infrastructure Loans

Loans for agriculture infrastructure subJect to an aggregate sanctioned limit of %00 crore/ borrower from the banking system for:

  • Loans for construction of storage facilities (warehouses, market yards, godowrrs & silos) including cold storage units

/ cold storage chains designed to store agriculture produce/products

  • Soil conservation and watershed development
  • Plant tissue culture and agro-biotechnology, seed production, production of bio-pesticides, bio-fertilizer anrl vermi composting.
  • Loans for construction of oil extraction/ processing units for production of bio-hiels, their storage and distribution infrastructure along with loans to entrepreneurs for setting up Compressed Bio Gas (CBG) plants

Ancillary activities:

  1. Loans upto Rs.5 crore to cooperative societies of farmers for disposing of the produce of members (Not for UCBs)
  2. Loans for Food & Agro-processing upto an aggregate sanctioned limit of Rs.100 crore per borrower from the banking system.
  3. Loans up to Rs. 50 crore to Start-ups, as per definition of Ministry of Commerce anrl Industry, Govt. of lndia that are engaged in agriculture and allied services.
  4. Loans for setting up of Agri-clinics anrl Agri-business centres
  5. Loans to Custom Service Units managed by individuals, institutions/organizations who maintain a fleet of tractors, bulldozers, well-boring equipment, threshers etc., and undertake farm work on contract basis.

Non-Achievement of Priority Sector Targets

Banks having any shortfall in lending to priority sector shall be allocated amounts for contribution to the Rural Infrastructure Development Fund (RIDF) established with NABARD and other funds with NABARD/NHB/SIDBI/ MUDRA Ltd., as decided by the Reserve Bank from time to time.

Self Help Groups

Self Help Groups are groups of 10-20 people in a locality formed for any social or economic purpose. No ceiling OF MEMBERS for irrigation projects & for handicap group 5-20 members.

A Joint Liability Group (JLG) is an informal group comprising of 4-10 individuals coming together for the purpose of availing bank loan on individual basis or through group mechanism against mutual guarantee. Generally, the members of a JLG would engage in a similar type of economic activity.

Revised Classification applicable w.e.f 1st July 2020
Composite Criteria: Investment in Plant & Machinery/equipment and Annual Turnover
ClassificationMICROSMALLMEDIUM
 Investment inInvestment inInvestment in
 Plant andPlant andPlant and
 Machinery orMachinery orMachinery or
Manufacturing         Enterprises and Enterprises rendering ServicesEquipment: Not more than Rs.1       rrore       and Annual Turnover ; not more than Rs. S croreEquipment: Not more than Rs.10 crore and Annual Turnover ; not more than Rs. 50 croreEquipment: Not more than Rs.50 crore and Annual Turnover ; not more than Rs. 250 crore

Composite Criterion of Investment and Turnover

  1. A composite criterion of investment and turnover shall apply for classification of an enterprise as micro, small or medium.
  2. If an enterprise crosses the ceiling limits specified for its present category in either of the two criteria of investmentor turnover, it will cease to exist in that category and be placed in the next higher category but no enterprise shallbe placed in the lower category unless it goes below the ceiling limits specified for its present category in both thecriteria of investment as well as turnover.

Calculation of investment in plant & machinery or Equipment:

The calculation of investment in plant and machinery or equipment will be linked to the Income Tax Return (ITR) of the previous years filed under the Income Tax Act, 1961.

In case of a new enterprise, where no prior ITR is available, the investment will be based on self- declaration of the promoter of the enterprise and such relaxation shall end after the 31st March of the financial year in which it files its first ITR.

The purchase (invoice) value of a plant and machinery or equipment, whether purchased first hand or second hand, shall be taken into account excluding Goods and Services Tax (GST), on self-disclosure basis, if the enterprise is a new one without any ITR.

The online form for Udyam Registration captures depreciated cost as on 31st March each year of the relevant previous year . The value of Plant & machinery or Equipment for all enterprises shall mean the Written Down Value as at the end of the financial year as defined in the Income Tax Act and not cost of acquisition or original price , which was applicable in earlier classification criteria.

Calculation of turnover.-

  1. Exports of goods or services or both, shall be excluded while calculating the turnover of any enterprise whether micro, small or medium, for the purposes of classification.
  2. Information as regards turnover and exports turnover for an enterprise shall be linked to the Income Tax Act or the Central Goods and Services Act (CGST Act) and the GSTIN.
  3. The turnover related figures of such enterprise which do not have PAN will be considered on self-declaration basis for a period up to 31st March, 2021 and thereafter, PAN and GSTIN shall be mandatory.

Composite criteria of investment and turnover for classification.—

  • A composite criterion of investment and turnover shall apply for classification of an enterprise as micro, small or medium.
  • If an enterprise crosses the ceiling limits specified for its present category in either of the two criteria of investment or turnover, it will cease to exist in that category and be placed in the next higher category but no enterprise shall be placed in the lower category unless it goes below the ceiling limits specified for its present category in both the criteria of investment as well as turnover.
  • All units with Goods and Services Tax Identification Number (GSTIN) listed against the same PAN shall be collectively treated as one enterprise and the turnover and investment figures for all of such entities shall be seen together and only the aggregate values will be considered for deciding the category as micro, small or medium enterprise.

Updation of information and transition period in classification:

An enterprise having URN has to update information on the Udyam Registration portal, with details of ITR and GST returns for previous FY, failure to update will render the enterprise liable for suspension of its status. Based on the information furnished or gathered from Government sources including ITR or GST Return, the classification will be updated and communication will be sent to the enterprise about the change in status.

In case of an upward change in terms of investment in plant and machinery or equipment or turnover or both, and , the enterprise will maintain its prevailing status till expiry of one year from the close of the year of registration.

In case of reverse gradation the enterprise will continue its present category till closure of the financial year and will be given benefit of changed status only weflst April of the FY following the FY in which the change took place.

Important Points Loans to MSME as Priority sector

  • All bank loans to MSMEs (as defined by GoI) qualify for classification under priority sector lending.
    • Loans up to Rs. 50 crore to Start-ups, as per definition of Ministry of Commerce and Industry, GovL of India that confirm to the definition of MSME
    • All loans sanctioned to units in the KVI sector will be eligible for classification under the sub-target of 7.5°ñ prescribed for Micro enterprises under priority sector.

Export credit

The Export Credit extended as per the details below will be classified as priority sector.

Export credit includes pre-shipment and post shipment export credit (excluding off balance sheet items)

Loans to individuals for educational purposes, including vocational courses, not exceeding 20 lakh will be considered as eligible for priority sector classification.

Housing

  1. Loans to individuals upto Rs. 35 lakh in metropolitan centres for purchase / construction of a dwelling unit per family is onsidered as eligible for priority sector (overall cost of the unit not to exceed Rs. 45 lakh)
  2. Loans to individuals upto Rs. 25 lakh in other centres (other than metropolitan) for purchase / construction of a dwelling unit per family is considered as eligible for priority sector. (Overall cost of the unit not to exceed Rs. 30 lakh)
  3. Housing loans to banks’ own employees will not be eligible for classification under the priority sector.

Repairs And Renovation

Loans upto Rs. 10 lakh in metropolitan centres and up to Rs.6 lakh in other centres for repairs to damaged dwelling units conforming to the overall cost of the dwelling unit.

Loans to any governmental agency for construction of dwelling units or for slum clearance and rehabilitation of slum dwellers subJect to dwelling units with carpet area of not more than 60 sq.rn.

Loans for affordable housing projects using at least S0% of FAR/FSI for dwelling units with carpet area of not more than 60 sq.m.

Bank loans to HFCs (approved by NHB for their refinance) for on- lending, up to IZ20 lakh for individual borrowers, for purchase/

construction / reconstruction of individual dwelling units or for slum clearance & rehabilitation of slum dwellers., subject to conditions.

Social infrastructure

Bank loans up to a limit of Rs.5 crore per borrower for setting up schools, drinking water facilities and sanitation facilities including construction/ refurbishment of household toilets and water improvements at household level, etc. and loans up to a limit of Rs.10 crore per borrower for building health care facilities including under ‘Ayushman Bharat’ in Tier II to Tier VI centres.

Bank loans to MFIs extended for on-lending to individuals and also to members of SHGs/JLGs for water and sanitation facilities.

Renewable energy

Bank loans up to a limit of Rs.30 crore to borrowers for purposes like solar based power generators, biomass-based power generators, mind mills, micro-hydel plants and for non- conventional energy based public utilities, viz., street lighting systems and remote village electrification etc., will be eligible for Priority Sector classification.

For individual households, the loan limit will be Rs.10 lakh per borrower.

Others

  1. Loans not exceeding Rs.50,000/- Rs. 1 lakh per borrower provided directly by banks to individuals and individual members of SHG / JLG (borrower’s household annual income not to exceed Rs.1,00,000/ in rural areas and Rs.1,60,000/ in non-rural areas).
  2. loans not exceeding Rs. 2.00 lakh provided directly by banks to SHG/JLG for activities other than agriculture or MSME, viz., loans for meeting social needs, construction or repair of house, construction of toilets or any viable common activity started by the SHGs.
  3. Loans to rlistressed persons (other than farmers-already included) not > Rs.1,00,000/- per borrower to prepay their debt to non-institutional lenders.
  4. 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.
  5. Loans up to Rs. 50 crore to Start-ups, as per definition of Ministry of Commerce and Industry, Govt. of India that are engaged in activities other than Agriculture or MSME.

Small and Marginal Farmers (SMFs)

  1. Farmers with landholding of up to 1 hectare (Marginal Farmers).
  2. Farmers with a landholding of more than 1 hectare and up to 2 hectares (Small Farmers).
  3. Landless agricultural labourers, tenant farmers, oral lessees and share-croppers, whose share of landholding is within the limits prescribed for small and marginal farmers.
  4. Loans to Self Help Groups (SHGs) or Joint Liability Groups (JLGs), i.e. groups of individual Small and Marginal farmers directly engaged in Agriculture and Allied Activities, provided banks maintain disaggregated data of such loans.
  5. Loans up to Rs.2 lakh to individuals solely engaged in Allied activities without any accompanying land holding criteria.

Priority Sector Lending Certificate (PSLC)

What are PSLCs?

The Priority Sector Lending Certificates are certificates issued by bariks that have overreached their priority sector lending targets. PSLCs thus can be issued only up to the extent of their over lending to the stipulated sectors. Buyers of PSLCs are usually those banks who could not meet their priority sector lending targets. The price of PSLCs will be determined on the basis of demand and supply that will be reflected in the auction under the RBI’s e-Kuber trading platform.

As per the RBI guidelines, banks can issue four types of PSLCs including three subsector PSLCs- agriculture, small and marginal farmers, micro enterprises and one PSLC for general.

Objectives:

  • To enable banks to achieve the PSL targets by purchase of these instruments in the event of shortfall
  • Incentivise the overachievers.
  • Enhancing lending to the categories under priority sector

Questions & Answers On Priority Sector

 

 

Q 1- Who issues Priority sector guidelines ?

Ans-  The Reserve Bank of India (RBI) requires banks to lend a specific percentage of their capital to particular industries, including renewable energy, micro, export credit, education, small and medium-sized enterprises (MSMEs), housing, and the agricultural sector.

Q.2. How much PS target to be achieved by Domestic scheduled commercial banks and foreign banks with more than 20 branches in India?

Ans- 40 % of ANBC or (CEOBE) whichever is higher.

Q.3. What is ANBC ?

Ans- Adjusted Net Bank Credit or Credit

Q 3- What is CEOBE ?

Ans- Credit Equivalent Amount of Off -Balance Sheet Exposure

Q 4- How much PS target to be achieved in Agriculture:

Ans- 18% of ANBC or (CEOBE) whichever is higher.

Q5- Within the 18 % target for agriculture, what is the target for Small and marginal farmers:

Ans- 8 %

Q 6- How much PS target to be achieved in Micro Enterprises?

Ans- 7.5%

Q.7- How much PS target to WEAKER SECTIONS be achieved by Domestic scheduled commercial banks and foreign banks with more than 20 branches in India?

Ans-  12%

Q 8- What is the target for total Priority Sector lending by Regional Rural Bank and Small Finance Banks ?

Ans- 75% of ANBC

Q 9 – What is the target for Weaker Section lending by Regional Rural Bank and Small Finance Banks?

Ans-  15% (Latest)

Q 10- What is the limit of Priority Sector Lending to Social Infrastructure:

Ans- Rs.5 crore per borrower for setting up schools, drinking water facilities and sanitation facilities including construction/ refurbishment of household toilets and water improvements at the household level, etc.

Limit of Rs.10 crore per borrower for building health care facilities including under ‘Ayushman Bharat’ in Tier II to Tier VI centres.

Q 11- How much loan amount is covered under Education (Domestic & Abroad) for Education Sector?

Ans-  20 Lac

Q 12- What is the limit of Priority Sector Lending to Renewal Energy?

Ans-  30 crores

Q13 -What is the limit of Priority Sector Lending to Exports?

Ans-  40 crores

Q 14- What is the limit of Priority Sector Lending to Housing Loans?

Ans- Metropolitan: Rs.35 lacs (Maximum house value Rs.45 lacs)

Other cities: Rs.25 lacs (Maximum house value Rs.30 lacs)

Q 15- Under Weaker Section what is the maximum coverage under Artisans, village and cottage industries for Individuals?

Ans-  1 Lac

Q 16 -Under Weaker Section what is the maximum coverage under Individual Women Beneficiaries?

Ans- Up to Rs. 1 lac per borrower

Q 17- What is the Overdraft limit to PMJDY account holder?

Ans-  upto Rs.10,000/- with age limit of 18-65 years.

Q 18- What is definition of Small and Marginal Farmers (SMFs) under PS?

Ans- Farmers with landholding of up to 1 hectare (Marginal Farmers).

Farmers with a landholding of more than 1 hectare and up to 2 hectares (Small Farmers).

Q19 -What is the penalty for Non-achievement of Priority Sector targets by banks?

Ans-  Banks having any shortfall in lending to priority sector shall be allocated amounts for contribution to the Rural Infrastructure Development Fund (RIDF) established with NABARD and other funds with NABARD/NHB/SIDBI/ MUDRA Ltd., as decided by the Reserve Bank from time to time.

Q 20- In which Institution RIDF is established?

Ans- NABARD

Q 21 -What is CGFSEL:

Ans-  Credit Guarantee Fund for Education Loans

Q 22- How much is loan amount guaranteed under CGFSEL?

Ans-  7.50 Lacs

Q 23- How much is the guarantee cover under CGFSEL ?

Ans- 75% of amount in default

Q 24- What is the maximum finance under MICRO CREDIT ?

Ans- Rs 1.25 lakh

.

 Q 25- What is the maximum number of members of self-help group ?

Ans- 10-20 people in a locality formed for any social or economic purpose.

Q 26- What are minimum & maximum members of Joint Liability groups ?

Ans-  4-10

Q 27- Who gives guarantee under JLG ?

Ans- Mutual guarantee

Q 27- What is Micro Enterprises ?

Ans- Unit with investment in plant & machinery not more than one crore & turnover not more than 5 Crore

Q 28-What is Small Enterprises ?

Ans-  Unit with investment in plant & machinery not more than Ten crore & turnover not more than 50 Crores

Q 29- What is Medium Enterprises ?

Ans- Unit with inves6nent in plant & machinery not more than fifty crore & turnover not more than 250 Crores

Q 30- The Investment & Turnover of the Small enterprise has increased to 15 crores & 40 crores respectively; in what category it will be placed now ?

Ans-  Medium

Q 31- The Investment & Turnover of the Small enterprise has decreased to 4 crores & 30 crores respectively; in what category it will be placed now ?

Ans-  Small Enterprises

Q 32- The Investment & Turnover of the Medium enterprise has decreased to 8 crores & 35 crores respectively; in what category it will be placed no ?

Ans- Small Enterprises

Q 33-What is loan amount without collateral to MSME?

Ans-10 Lac

Q 34-CGTMSE cover eligible to MSME upto?

Ans- Rs.200.00 Lac

Q 35- CGTMSE set up by ?

Ans-  Govt of India and SIDBI

Q 36-Debt Swap meaning ?

Ans- To extend finance to farmers for paying of loan taken from other non- institution lenders.

Q 37- What is the amount of Premium under PMJJBY scheme ?

Ans-  Rs436/-

Q 38- What is the age limit under Atal Pension Yojana (APY) ?

Ans- 18 to 40 years

Q 39- What is the maximum age limit in PMSBY ?

Ans- 70 Years

Q 40- Banks loans up to MSME are eligible for classification under priority sector:

Ans-  No limit

Q 41- What are Priority Sector Lending Certificates (PSLCs) ?

Ans- A mechanism to enable banks to achieve the priority sector lending target and sub-targets by purchase of these instruments in the event of shortfall

Q 42- Which Organisation has assigried priority sector lending (PSL) status to India’s start-up sector ?

Ans- RBI

Q 43- What is limit for farm credit to individual under PS ?

Ans- 10 Lac

Q 44- How much is the amount of Start-up loans covered under PS ?

Ans- 50 crores

Q 45 -What is Udyog Aadhaar Memorandum in MSME ?

Ans- UAM is a one-page registration form which constitutes a self- declaration format under which the MSME will self-certify its existence, bank account details, promoter/owner’s Aadhaar details and other minimum information required.

Leave a Comment

Your email address will not be published. Required fields are marked *

Scroll to Top