Priority Sector Lending- Targets and Classification

I. Categories under priority sector

(i)       Agriculture

(ii)     Micro, Small and Medium Enterprises

(iii)     Export Credit

(iv)     Education

(v)       Housing

(vi)     Social Infrastructure

(vii)     Renewable Energy

(viii)     Others

II. Targets /Sub-targets for Priority sector

(i) The targets and sub-targets set under priority sector lending for all scheduled commercial banks operating in India are furnished below:

Categories	Domestic scheduled commercial banks and  Foreign  banks  with  20  branches and above	Foreign banks with less than 20 branches
Total Priority Sector	40 % of ANBC or Credit equivalent Amount of OBS(OBS) Exposure, whichever is higher. Foreign  banks  with  20  branches  and above have to achieve the Target within a maximum period of five years from April 1, 2013.	40  %  of  ANBC or  Credit Equivalent  Amount  of  OBS Exposure, whichever  is  higher;  to  be achieved  by  2020  .
Agriculture	18 % of ANBC or Credit Equivalent Amount of OBS, whichever is higher. Within   the   18 % , a target of 8 % is   prescribed   for   Small   and Marginal  Farmers,  to  be  achieved  by Mar’17.  Foreign  banks  with  20  branches  or more  have  to  achieve  the  Target  by 31st Mar’18.  The  sub-target  as above  would  be made applicable post 2018 after a review in 2017.	Not applicable
Micro Enterprises	7.5 % of ANBC or Credit Equivalent Amount of  OBS  Exposure, whichever is higher to be achieved by March 2017. The sub-target for Micro Enterprises for foreign banks with 20 branches and above would be made applicable post 2018 after a review in 2017.	Not Applicable
Advances to Weaker Sections	10 % of ANBC or Credit Equivalent Amount of OBS Exposure, whichever is higher. Foreign banks  with  20  branches  and above   have   to   achieve   the   Weaker Sections Target 31st Mar’18.	Not Applicable

(ii) The Total Priority Sector target of 40 % for foreign banks with less than 20 branches has to be achieved in a phased manner as under:-

YEAR	%AGE
2015-16	32
2016-17	34
2017-18	36
2018-19	38
2019-20	40

The additional target of 2% of ANBC each year from 2016-17 to 2019-20 has to be achieved by lending to sectors other than exports. The sub targets for post 2020, would be decided in due course.

(iii) The computation of targets will be based on the ANBC or Credit Equivalent Amount of OBS Exposures, whichever is higher, as on the corresponding date of the preceding year. For the purpose of calculation of Credit Equivalent Amount of OBS Exposures, banks may be guided by the Master Circular on Exposure Norms.

Computation of Adjusted Net Bank Credit (ANBC)

Bank Credit in India.	I
Bills Rediscounted with RBI and other approved Financial Institutions	II
Net Bank Credit (NBC)*	III (I-II)
Bonds/debentures in Non-SLR categories under HTM category+ investments treated as PS + Deposits under RIDF and eligible  funds  with  NABARD,  NHB,  SIDBI  and  MUDRA  Ltd.  due to PS shortfall + outstanding PSLCs	IV
Exemptions on long-term bonds issued for infrastructure and  affordable  housing	V
Advances  extended  in  India  against  the  incremental  FCNR  (B)/NRE deposits, qualifying for exemption from CRR/SLR requirements.	VI
ANBC	III+IV-V-VI

III. Description of the eligible categories under priority sector

1. Agriculture

Farm credit	A. Loans to individual farmers or group of farmers, directly engaged in Agriculture and Allied Activities.  This  will include: (i) Crop loans and loans for allied activities. (ii) Medium and long-term loans agriculture and allied activities  (iii) Loans for pre and post-harvest activities of their own farm produce. (iv) Loans up to ₹ 50 lakh against pledge/hypothecation of agricultural produce (including warehouse receipts) for a period not exceeding 12 months. (v) Loans to distressed farmers indebted to non-institutional lenders. (vi) Loans to farmers under the Kisan Credit Card Scheme. (vii) Loans to small and marginal farmers for purchase of  land for agriculture. B. Loans to Corporate farmers, Producer’s organizations, Companies, partnership firms and co-operatives directly engaged in Agriculture and Allied activities.
Agriculture infrastructure	i)  Loans for construction of storage facilities to store agriculture produce. ii) Soil conservation and watershed development. iii) An aggregate sanctioned limit of ₹ 100 crore per borrower for plant tissue culture and agri-biotechnology, seed production, production of bio-pesticides, bio-fertilizer, and vermi composting.
Ancillary activities	(i)                  (i)Loan up to Rs.5cr to co-operative societies for disposing the produce of members. (ii)Loans for setting up of Agriclinics and Agribusiness Centres. (iii)Loans for Food and Agro-processing up to ₹ 100 crore per borrower. (iv)Loans  to  Custom  Service  Units who  maintain  a  fleet  of  tractors, bulldozers,  well-boring  equipment,  threshers,  combines,  etc.,  and undertake farm work for farmers on contract basis. (v) Bank loans to PACS, FSS and LAMPS for on-lending to agriculture. (vi) Loans sanctioned to MFIs for on-lending to agriculture (vii) Outstanding deposits under RIDF/ NABARD on account of PS shortfall.

Small and Marginal Farmers will include the following:-

-          Farmers with landholding of up to 1 hectare are Marginal Farmers. Farmers with a landholding of more than 1 hectare and upto 2 hectares are Small Farmers.

-          Landless agricultural labourers, tenant farmers, oral lessees and share-croppers, whose share of landholding is within the limits prescribed for small and marginal farmers.

-          Loans to groups of individual Small and Marginal farmers directly engaged in Agriculture and Allied Activities, provided banks maintain disaggregated data of such loans.

-          Loans to farmers' producer companies, and co-operatives of farmers directly engaged in Agriculture and Allied Activities, where the membership of Small and Marginal Farmers is not less than 75 % by number and their collective land-holding  is also not less than 75 % of total land-holding of the group.

2. Micro, Small and Medium Enterprises (MSMEs)

The limits for investment in plant and machinery/equipment for manufacturing / service enterprise are as under:-

Manufacturing Sector Enterprises	Investment in plant and machinery
Micro Enterprises	Does not exceed Rs. 25 lakh
Small Enterprises	More than Rs. 25 lakh but does not exceed Rs. 5 cr
Medium Enterprises	More than Rs.5 cr but does not exceed Rs.10 cr
Service Sector Enterprises	Investment in Equipments
Micro Enterprises	Does not exceed Rs.10 lakh
Small Enterprises	More than Rs.10 lakh but does not exceed Rs.2 cr
Medium Enterprises	More than Rs.2 cr but does not exceed Rs.5 cr

Bank loans to Micro, Small and Medium Enterprises, for both manufacturing and service sectors are eligible to be classified under the priority sector as per the following norms:

Manufacturing Enterprises

The Micro, Small and Medium Enterprises engaged in the manufacture of goods as notified by the Government from time to time and in terms of investment in plant and machinery.

Service Enterprises

Bank loans as mentioned above, engaged in providing services and defined in terms of investment in equipment under MSMED Act.

Khadi and Village Industries Sector (KVI)

All loans to units in the KVI sector will be eligible for classification under the sub-target of 7 % /7.5 % prescribed for Micro Enterprises under priority sector.

Other Finance to MSMEs

(i)    Loans to entities assisting in the supply of inputs to and marketing of outputs of artisans, village and cottage industries.

(ii)    Loans to co-operatives of producers  (artisans, village and cottage industries).

(iii)   Loans sanctioned to MFIs for on-lending to MSME sector.

(iv)    Credit under General Credit Cards catering to the non-farm entrepreneurial credit needs.

(v) Outstanding deposits with SIDBI and MUDRA Ltd. on account of priority sector shortfall.

MSME units will continue to enjoy the priority sector lending status up to three years after they grow out of the MSME category concerned.

3. Export Credit

The Export Credit extended as per the details below would be classified as priority sector.

Domestic banks	Foreign banks with 20 branches and above	Foreign banks with less than 20 branches
Wef 1/4/15, incremental credit over Corresponding date of the preceding year upto (2 % of ANBC   or Credit Equivalent Amount of OBS Exposure, whichever is higher), subject to a sanctioned limit up to ₹ 25 crore per borrower to units having turnover of up to ₹ 100 crore.	Wef 1/4/15, incremental credit over corresponding date of the preceding year, up to (2 % of ANBC or Credit Equivalent Amount of OBS Exposure, whichever is higher).	Export credit upto 32 % of ANBC or Credit Equivalent Amount Of OBS Exposure, whichever is higher.

Export credit includes pre-shipment and post shipment export credit (excluding OBS items).

4. Education

Loans to individuals for educational purposes including vocational courses upto ₹ 10 lakh irrespective of the sanctioned amount will be considered as eligible for priority sector.

5. Housing 

(i) Loan to individuals

• Loans upto ₹ 28 lakh in metro centres and ₹ 20 lakh in other centres for one dwelling unit per family provided the cost per unit does not exceed ₹35 lakh and ₹25 lakh respectively.
• Banks should either include housing loans backed by long term bonds that are exempted from ANBC under priority sector or take benefit of exemption from ANBC, but not both.
• Loans for repairs up to ₹ 5 lakh in metro centres and up to ₹ 2 lakh in other centres.
• Loans to banks’ own employees will be excluded.

(ii)      Loans to Govt agency for construction or slum clearance and rehabilitation subject to a ceiling of ₹ 10 lakh per dwelling unit.

(iii)     Loans for housing projects for economically weaker sections and low income groups, not exceeding ₹ 10 lakh per unit. The annual income of such families should not exceed ₹ 2 lakh, irrespective of the location.

(iv) Housing finance companies where NHB has approved refinance, may be granted loans for the purpose of purchase/construction of units or slum clearance and rehabilitation, subject to a limit of ₹ 10 lakh per borrower.

Such loans will be considered under priority sector only to the extent of 5 % of the bank’s total priority sector lending, on an ongoing basis. The maturity of such loans should be co-terminus with average maturity of loans extended by HFCs. Banks should maintain necessary borrower-wise details of the underlying portfolio.

(vi) Deposits kept with NHB on account of shortfall in priority sector.

6. Social infrastructure 

Loans up to ₹ 5 crore per borrower for building schools, health care facilities, drinking water facilities and sanitation facilities in Tier II to Tier VI centres.

7. Renewable Energy 

Loans upto ₹ 15 crore for solar based power generators, biomass based power generators, wind mills, micro-hydel plants and for non-conventional energy based public utilities like street lighting systems and remote village electrification. For individual households, the limit will be ₹ 10 lakh per borrower.

8. Others 

Loans upto ₹ 50,000/- per borrower, individually or in groups (SHG,JLG), provided the individual’s annual household income in rural areas is upto ₹ 100,000/- and in non-rural areas is upto ₹ 1,60,000/-.

Loans to distressed persons upto ₹ 100,000/- to prepay their debt to non-institutional lenders.

Overdrafts upto ₹ 5,000/- under PMJDY provided the borrowers annual household income is upto

₹ 100,000/- for rural areas and ₹ 1,60,000/- for non-rural areas.

Loans to State Sponsored Organisations for SC/STs for purchase and supply of inputs and marketing of outputs by their beneficiaries.

IV. Weaker Sections

PS loans to the following borrowers will be considered under Weaker Sections category:-

No.	Category
1	Small and Marginal Farmers
2	Artisans, village and cottage industries with  individual credit limits upto ₹ 1 lakh
3	Beneficiaries under NRLM, NULM and  (SRMS)
4	Scheduled Castes and Scheduled Tribes
5	Beneficiaries of Differential Rate of Interest (DRI) scheme
6	Self Help Groups
7	Distressed farmers indebted to non-institutional lenders
8	Distressed persons other than farmers, with loan upto ₹ 1 lakh per borrower to prepay their debt to non-institutional lenders
9	Individual women beneficiaries up to ₹ 1 lakh per borrower
10	Persons with disabilities
11	Overdrafts upto  ₹ 5,000/-  under  PMJDY, provided the borrowers’ annual household income does not exceed ₹ 100,000/- for rural areas and ₹ 1,60,000/- for non-rural areas
12	Minority communities as may be notified by Government of India .

In States/UTs, where the notified minority community is in majority, it will not be considered as minority. These States/UTs are Jammu & Kashmir, Punjab, Meghalaya, Mizoram, Nagaland and Lakshadweep.

V. Investments by banks in securitised assets

(i) Investments by banks in securitised assets, representing loans to priority sector, except 'others' category, are eligible for classification under respective categories of priority sector:

(a)   the securitised assets are originated by banks and are eligible for classification under priority sector prior to securitisation.

(b)   The all inclusive interest charged to the ultimate borrower by the originating entity should not exceed the Base Rate of the investing bank plus 8 % per annum.

The investments in securitised assets originated by MFIs, are exempted from this interest cap as there are separate caps on margin and interest rate.

(ii) Investments by banks in securitised assets originated by NBFCs, where the underlying assets are loans against gold jewellery, are not eligible for priority sector status.

VI. Transfer of Assets through Direct Assignment /Outright purchases

(i) Assignments/Outright purchases of assets representing loans under priority sector, except the 'others' category, will be eligible for classification under priority sector provided:

(a)    the assets originated by banks which can be classified as priority sector prior to the purchase and fulfil the RBI guidelines on outright purchase/assignment.

(b)    the eligible loan assets so purchased should not be disposed of other than by way of repayment.

(c)   the all inclusive interest charged to the ultimate borrower by the originating entity should not exceed the Base Rate of the purchasing bank plus 8 % per annum.

The Assignments/Outright purchases of eligible priority sector loans from MFIs, are exempted from this interest rate cap as there are separate caps on margin and interest rate.

(ii)      When the banks out rightly purchase the loan assets to be classified under priority sector, they must report the amount actually disbursed to the borrowers and not the premium embedded amount paid to the sellers.

(iii)    Such transactions undertaken by banks with NBFCs, where the underlying assets are loans against gold jewellery, are not eligible for priority sector status.

VII. Inter Bank Participation Certificates

Inter Bank Participation Certificates (IBPCs) bought by banks, on a risk sharing basis, are eligible for classification priority sector, provided the underlying assets are eligible to be categorized as such and the banks fulfil the RBI guidelines on IBPCs.

VIII. Priority Sector Lending Certificates

The outstanding priority sector lending certificates will be eligible for classification under priority sector provided the assets are originated by banks, and are eligible for classification as priority sector and fulfil the RBI guidelines on priority sector lending certificates.

IX. Bank loans to MFIs for on-lending

(a) Bank credit to MFIs for on-lending to individuals and members of SHGs / JLGs will be eligible for categorisation as priority sector, provided not less than 85 % of total assets of MFI  are in the nature of “qualifying assets”. In addition, loan extended for income generating activity, should be not less than 50 % of the total loans given by MFIs.

(b) A “qualifying asset” shall mean a loan disbursed by MFI, which satisfies the following criteria:

(i)     The loan to a borrower whose annual household income in rural areas is upto ₹ 1,00,000/- and for non-rural areas upto ₹ 1,60,000/-.

(ii)   Loan does not exceed ₹ 60,000/- in the first cycle and ₹ 100,000/- in the subsequent cycles.

(iii) Total indebtedness of the borrower does not exceed ₹ 1,00,000/-.

(iv) Tenure of loan is not less than 24 months when loan amount exceeds ₹ 15,000/- ,with right to borrower to prepay the amount without penalty.

(v)   The loan is without collateral.

(vi) Loan is repayable by weekly, fortnightly or monthly installments as per borrower’s choice.

(c) MFIs should comply with the following caps on margin and interest rate and other ‘pricing guidelines’, to be eligible for classifying these loans under priority sector.

(i)     Margin cap: The margin cap should not exceed 10 % for MFIs having loan portfolio exceeding ₹ 100 crore and 12 % for others. The interest cost is to be calculated on average fortnightly balances of outstanding borrowings and interest income is to be calculated on average fortnightly balances of outstanding loan portfolio of qualifying assets.

(ii)   Interest cap on individual loans: Interest rate on individual loans will be the average Base Rate of five largest commercial banks by assets multiplied by 2.75 per annum or cost of funds plus margin cap, whichever is less. The average of the Base Rate shall be advised by RBI.

(iii) Only three components are to be included in pricing of loans viz., (a) a processing fee not exceeding 1 % of the gross loan amount, (b) the interest charge and (c) the insurance premium.

(iv) The processing fee is not to be included in the margin cap or the interest cap.

(v)   Only the actual cost of group insurance for life, health and livestock for borrower and spouse can be recovered; administrative charges may be recovered as per IRDA guidelines.

(vi) There should not be any penalty for delayed payment.

(vii)                       No Security Deposit/ Margin are to be taken.

(d) At the end of each quarter, the banks should obtain from an MFI, a Chartered Accountant’s Certificate stating, that the criteria on (i) qualifying assets, (ii) the aggregate amount of loan, extended for income generation activity, and (iii) pricing guidelines are followed.

X. Monitoring of Priority Sector Lending targets

The compliance of banks will be monitored on ‘quarterly’ basis. The data on priority sector advances has to be furnished by banks at quarterly and annual intervals as per revised reporting formats.

XI. Non-achievement of Priority Sector targets

Scheduled Commercial Banks having shortfall in lending to priority sector shall be allocated amounts for contribution to RIDF and other Funds with NABARD/NHB/SIDBI/ MUDRA Ltd. For the year 2015-16, the shortfall will be assessed based on the position as on March 31, 2016. From financial year 2016-17 onwards, the achievement will be arrived at the end of financial year based on the average of priority sector target /sub-target achievement as at the end of each quarter.

The interest rates on banks’ contribution to RIDF or any other Funds, tenure of deposits, etc. shall be fixed by RBI.

The misclassifications reported by the Reserve Bank’s Department of Banking Supervision would be reduced from the achievement of that year, to which the amount of misclassification pertains, for allocation to various funds in subsequent years.

Non-achievement of priority sector targets will be taken into account while granting regulatory clearances/approvals for various purposes.

XII. Common guidelines for priority sector loans

Banks should comply with the following guidelines for advances under the priority sector.

  

1. Rate of interest

The rates of interest will be as per directives issued by RBI.

2. Service charges

No loan related charges should be levied on priority sector loans up to ₹ 25,000.

3. Receipt, Sanction/Rejection/Disbursement Register

A register should be maintained, wherein the date of receipt, sanction/rejection/disbursement with reasons, etc., should be recorded.

4. Issue of Acknowledgement of Loan Applications

Banks should provide acknowledgement for loan applications received under priority sector loans. Bank Boards should prescribe a time limit within which the bank communicates its decision in writing to the applicants.

XIII. Amendments

These guidelines are subject to any further instructions that may be issued by the RBI.

XIV. Definitions/Clarifications

1.   On-lending: Loans sanctioned by banks to eligible intermediaries for onward lending only for creation of priority sector assets.

2.    Contingent liabilities/OBS items do not form part of priority sector target achievement. However, foreign banks with less than 20 branches have an option to reckon the credit equivalent of OBS items, extended to borrowers for eligible priority sector activities, along with priority sector loans for the purpose of computation of priority sector target achievement. In that case, the credit equivalent of all OBS items (both priority sector and non-priority sector excluding interbank) should be added to the ANBC in the denominator for computation of Priority Sector Lending targets.

3.   OBS interbank exposures are excluded for computing Credit Equivalent of OBS Exposures for the priority sector targets.

4.   The term “all inclusive interest” includes interest (effective annual interest), processing fees and service charges.

5.   Banks should ensure that loans extended under priority sector are for approved purposes and the end use is continuously monitored.

Based on the Master Circular of 1/7/15. Please visit www.rbi.org.in if required…………… Poppy