What changed
This Master Circular consolidates all prior circulars and clarifications on priority sector lending issued up to June 30, 2011, into one document. It reaffirms the 40% target for priority sector advances and includes updated categories based on the Internal Working Group (Chairman: Shri C. S. Murthy) set up in September 2005 and the Sub-Committee of the Central Board of the Reserve Bank (Chairman: Shri Y. H. Malegam) on MFIs.
What it means for you
Banks now have a single reference for priority sector lending rules, reducing confusion from multiple circulars. The inclusion of MFI loans under priority sector, subject to criteria, expands lending avenues. Compliance with targets and sub-targets remains critical for regulatory reporting and avoiding penalties.
What you must do
- Review and align your bank's priority sector lending portfolio with the consolidated guidelines in this Master Circular.
- Ensure 40% of aggregate advances are directed to priority sectors, with sub-targets for agriculture and weaker sections.
- Verify that bank loans to MFIs meet stipulated criteria to qualify as priority sector advances.
- Update internal policies and training materials to reflect the consolidated instructions up to June 30, 2011.
Who it affects
All scheduled commercial banks (excluding Regional Rural Banks), Priority sector lending departments, Compliance and risk management teams, Agricultural and MSME lending units
What is the main target for priority sector lending under this circular?
Banks must achieve 40% of aggregate bank advances as priority sector lending, with sub-targets for agriculture and weaker sections, as per historical mandates.
Does this circular change the definition of priority sectors?
It consolidates existing definitions, including agriculture, tiny and small enterprises, and bank loans to MFIs meeting criteria, based on the Murthy Working Group and Malegam Sub-Committee recommendations.
Are Regional Rural Banks covered by this circular?
No, this Master Circular applies to all scheduled commercial banks excluding Regional Rural Banks.