Priority Sector Lending Targets and Classification Revised

RBI/2012-13/138 RPCD.CO.Plan.BC 13/04.09.01/2012-13 July 20, 2012 The Chairman/ Managing Director/ Chief Executive Officer [All scheduled commercial banks (excluding Regional Rural Banks)] Dear Sir, PRIORITY SECTOR LENDING –TARGETS AND CLASSIFICATION As  proposed in Paragraph 94 of the Monetary Policy Statement 2011-12, the Reserve Bank of India in August 2011 set up a Committee to re-examine the existing classification and suggest revised guidelines with regard to Priority Sector lending classification and related issues (Chairman: Shri M V Nair). The Committee submitted its report in February 2012, which was placed in public domain for comments. 2. The recommendations of the Committee have been examined based on the interface with various stakeholders and in the light of the comments /suggestions received from Government of India, banks, financial institutions, Non-Banking Financial Companies, Associations of industries, public and Indian Banks’ Association; and it has been decided to revise the existing guidelines in supersession of guidelines mentioned in the master circular on priority sector lending dated July 2, 2012. 3.  The revised guidelines will be operational with immediate effect . The priority sector loans sanctioned under the guidelines issued prior to the date of this circular will continue to be classified under priority sector till maturity / renewal. Yours faithfully, (A. K. Misra) General Manager Introduction At a meeting of the National Credit Council held in July 1968, it was emphasised that commercial banks should increase their involvement in the financing of priority sectors, viz., agriculture and small scale industries. The description of the priority sectors was later formalised in 1972 on the basis of the report submitted by the Informal Study Group on Statistics relating to advances to the Priority Sectors constituted by the Reserve Bank in May 1971. On the basis of this report, the Reserve Bank prescribed a modified return for reporting priority sector advances and certain guidelines were issued in this connection indicating the scope of the items to be included under the various categories of priority sector. Although initially there was no specific target fixed in respect of priority sector lending, in November 1974 the banks were advised to raise the share of these sectors in their aggregate advances to the level of 33 1/3 percent by March 1979. At a meeting of the Union Finance Minister with the Chief Executive Officers of public sector banks held in March 1980, it was agreed that banks should aim at raising the proportion of their advances to priority sector to 40 percent by March 1985. Subsequently, on the basis of the recommendations of the Working Group on the Modalities of Implementation of Priority Sector Lending and the Twenty Point Economic Programme by Banks (Chairman: Dr. K. S. Krishnaswamy), all commercial banks were advised to achieve the target of priority sector lending at 40 percent of aggregate bank advances by 1985. Sub-targets were also specified for lending to agriculture and the weaker sections within the priority sector. Since then, there have been several changes in the scope of priority sector lending and the targets and sub-targets applicable to various bank groups. The guidelines were last revised in the year 2007 based on the recommendations made in September 2005 by the Internal Working Group of the RBI (Chairman: Shri C. S. Murthy). The Sub-Committee of the Central Board of the Reserve Bank (Chairman: Shri Y. H. Malegam) constituted to study issues and concerns in the Micro Finance institutions (MFI) sector, inter alia, had recommended review of the guidelines on priority sector lending. Accordingly, Reserve Bank of India in August 2011 set up a Committee to re-examine the existing classification and suggest revised guidelines with regard to Priority Sector lending classification and related issues (Chairman: M V Nair). The recommendations of the committee were placed in the public domain inviting public comments. The suggestions were also examined vis-a-vis the comments received from various stake holders. Based on the above and with a view to simplify the norms the following guidelines are laid down. I. Categories under priority sector (i) Agriculture (ii) Micro and Small Enterprises (iii) Education (iv) Housing (v) Export Credit (vi) Others The eligible activities under the above categories are specified in paragraph III II. Targets /Sub-targets for Priority sector (i) The targets and sub-targets set under priority sector lending for domestic and foreign banks operating in India are furnished below: Categories

Reproduced for reference with acknowledgment — Source: Reserve Bank of India · RBI/2012-13/138 · issued 20 Jul 2012. The plain-English explanation above is BankPulse’s own independent summary.

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