What changed
This Master Circular consolidates all priority sector lending instructions for PCBs up to June 30, 2005, updating the July 2, 2004 circular. It reaffirms the 60% priority sector target and the weaker section sub-target of at least 25% of priority sector advances (or 15% of total loans), along with SSI sub-targets. No new targets were introduced; the circular updates and streamlines existing guidelines.
What it means for you
PCBs must maintain 60% of loan portfolios in priority sectors, with at least 15% to weaker sections. SSI lending must follow specific sub-targets based on investment in plant and machinery. Banks need robust systems to classify advances correctly, ensuring loans are used for stated purposes, not just secured by gold or other collateral.
What you must do
- Review and align loan portfolio to meet 60% priority sector and 15% weaker section targets.
- Ensure SSI advances comply with sub-targets: 40% to units with investment up to Rs 5 lakh, 20% between Rs 5-25 lakh, 40% between Rs 25-100 lakh.
- Strengthen loan classification processes to verify purpose and end-use, not just security, for priority sector tagging.
- Simplify systems and procedures to facilitate credit flow to priority sector beneficiaries.
Who it affects
Primary (Urban) Co-operative Banks, Small Scale Industries and weaker section borrowers
Are Salary Earners' Banks required to meet priority sector lending targets?
No, the stipulation regarding priority sector lendings is not applicable to Salary Earners' Banks.
What are the sub-targets for SSI advances?
For SSI advances, 40% must go to cottage industries, khadi & village industries, artisans and tiny industries with investment up to Rs 5 lakh; 20% to similar units with investment between Rs 5-25 lakh; and 40% to other SSI units with investment between Rs 25-100 lakh.
How should banks classify a loan as priority sector?
Banks must consider the loan purpose, amount, and ensure funds are used for the stated purpose, not just the security offered. For example, a loan against gold for housing requires verification of land and approved plans.