PRIORITY SECTOR LENDING - REVAMPED GUIDELINE
BANKING FINANCE|August 2021
To minimize regional disparity in Priority sector credit flow and boost economy to achieve sustainable development goals
Navneet Prakash Sinha

The Reserve Bank of India has come up with a revised guidelines of priority sector lending to align with emerging national priorities for better credit penetration to credit deficit areas by increased lending to weaker sections including small and marginal farmers, renewal energy and health infrastructure with a sharper focus on inclusive development.

To address regional disparities in the flow of priority sector credit, higher weightage has been assigned to incremental priority sector credit in identified districts where priority sector credit flow is comparatively low. It has been decided to rank districts on the basis of per capita credit flow to the priority sectors and incentivize the credit flow to the districts with comparatively having a lower flow of priority sector credit along with credit flow to some specific sectors like clean energy, Health Infrastructure, and weaker sections. Accordingly, from the Financial Year 2022 onwards, a higher weightage (125%) has been prescribed to the incremental credit to the priority sector in the identified districts where per capita PSL is less than Rs. 6000/- and a lower weightage (90%) would be assigned for the incremental priority sector credit in the identified districts having per capita PSL greater than Rs. 25000/- where the credit flow is comparatively higher.

The RBI has identified 184 districts with low PSL credit flow. In the revised PSL guideline, the targets for 'Small and Marginal Farmers' and 'Weaker Sections' are to be increased in a phased manner. Also, a higher credit limit has been given for Farmer Producers Organizations (FPOs)/ Farmer Producers Companies (FPCs) that undertaking farming with assured marketing of their produce at a pre-determined price.

Lending to Renewal energy has also been doubled. Now new loans up to Rs. 30 crores to borrowers for the purposes like Solar based power generators, Biomass-based power generators, windmills, micro-hydel plants, and for nonconventional energy-based public utilities are eligible for priority sector classification. Moreover, the loans up to Rs. 50 crores extended for start ups that are engaged in agriculture and allied activities are now eligible for priority sector classification.

Gist of revised Priority Sector Lending guidelines issued by Reserve bank of India on 04th September 2020 is appended: The revised guideline is applicable to all commercial Banks, Regional Rural Banks (RRBs), Small Finance Banks (SFBs), Local Area Banks, and Primary Urban Cooperative Banks (UCBs).

Following activities are categorised under Priority Sector: 1.

1 Agriculture - The lending to agriculture includes Farm Credits (Agriculture and Allied activities), Lending to Agriculture Infrastructure and Ancillary Activities.

Farm Credit - The eligible entities are Farmers (including SHGs & JLGs), Groups of individual farmers, Proprietorship firms of farmers directly engaged in agriculture and allied activities. Moreover, corporate farmers, Farmer Producer organizations (FPOs/FPCs), Companies of Individual Farmers, Partnership Firms, and cooperatives of farmers engaged in agriculture and allied activities are also eligible subject to an aggregate limit of Rs 2.00 Crore per borrower. The major activities under farm credit are crop loans, Medium and long term loans for agriculture and allied activities, loans for pre and post-harvest activities, loans to small and marginal farmers for purchase of agricultural land, loans against pledge/hypothecation of agricultural produce including warehouse receipt subject to a limit of Rs. 50.00 lacs and loans to farmers for installation of solar pumps for agricultural purposes. Loans to FPOs /FPCs undertaking farming with assured marketing of their produce at a pre-determined price subject to a maximum up to Rs. 5.00 crore per borrowing are classified under priority sector.

Agriculture Infrastructure - Loans for construction of storage facilities like a warehouse, market yards, godowns, silos including cold storage units and cold storage chains irrespective of their location, soil conservation, watershed management, plant tissue culture, agri-biotechnology, bio-pesticides, bio-fertilizers, vermicomposting, seed production, etc. subject to aggregate sanction limit of Rs. 1.00 crore per borrower from entire banking system.

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