Priority loans: new RBI standards for low credit areas


The Reserve Bank of India (RBI) on Friday released new standards for Priority Sector Lending (PSL), increasing the weights associated with districts with relatively lower credit penetration.

Bank financing to start-ups (up to Rs 50 crore), bad credit loans to farmers for the installation of solar power plants for the solarization of agricultural pumps connected to the network and loans for the establishment of compressed biogas plants (CBG) were included as new categories eligible for funding. under PSL.

The PSL guidelines issued by the RBI were last revised for commercial banks in April 2015 and for urban cooperative banks (UCBs) in May 2018, the central bank said in a circular. “With the objective of harmonizing the various instructions sent to commercial banks, SFBs (small financial banks), RRBs (rural regional banks), UCBs and LABs (local banks); aligning these guidelines with emerging national priorities and placing more emphasis on inclusive development, it was decided to thoroughly review the PSL guidelines, ”the circular said.

Starting in FY 22, a 125% weight would be assigned to incremental priority sector credit in identified districts where credit flow is comparatively lower and PSL per capita is less than Rs 6,000. There are 184 such districts. A 90% lower weight would be assigned to the additional priority sector credit in the 205 identified districts where the credit flow is comparatively higher and the PSL per capita is above 25,000 rupees.

Other districts will continue to have the current weight of 100%.

The circular imposes a phased increase in the PSLs of the UCBs over a period of four years. The current 40% target will be raised to 75% of Adjusted Net Bank Credit (ANBC) or Credit Equivalent of Off-Balance Sheet Exposures (CEOBE), whichever is greater, effective March 31, 2024.

The target for lending to marginal small farmers will increase from 8% to 10% in FY24 for all categories of banks except UCBs. The target for lending to the weakest sections will increase to 12% in FY24, compared to 10% now for all banks except ORRs, which will continue to have a target of 15% for this year. category. “All domestic banks (other than UCBs) and foreign banks with more than 20 branches are required to ensure that all loans to non-corporate farmers (NCFs) do not fall below the average at l ‘system scale of the past three years, which will be notified separately each year,’ the circular said. The applicable target for unincorporated farmer loans for FY21 will be 12.14% ANBC or CEOBE, whichever is greater. Banks should also work to meet the target of 13.5% of ANBC going to FNCs.

Other changes to the PSL classification include higher eligibility for loans to Agricultural Producer Organizations (FPO) / (FPC), with credit of up to Rs 5 crore to these now qualified PSL entities. Loans up to Rs 50 lakh against pledge / mortgage of agricultural products (including warehouse receipts) for a period of up to 12 months will qualify as PSL.

Bank loans up to a limit of Rs 30 crore to borrowers for such purposes as solar power generators, biomass power generators, windmills, micro hydropower plants and for utilities energy-based unconventional systems, such as street and remote lighting systems, village electrification, etc., will be eligible for the PSL ranking. The PSL classification limit for the construction of health care facilities, including under “Ayushman Bharat” in level II to VI centers, will be Rs 10 crore per borrower. Loans of up to 50 crore to start-ups, as defined by the Ministry of Trade and Industry, will be eligible under PSL. Bank loans to non-bank financial corporations (NBFCs) and housing finance companies (HFCs) for on-lending will be allowed up to an overall limit of 5% of the total PSL of each bank.

Krishnan Sitaraman, Senior Director of Crisil Ratings, said revised PSL guidelines will encourage credit flow to specific segments such as clean energy, weaker sections, health infrastructure and credit-deficient geographies. .

“These measures are also aligned with priority development areas according to the existing policy environment and will support the financing needs in these specific sectors,” he said.

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