Priority Sector Lending-Targets and Classification

RBI/2014–15/573
April 23, 2015

PRIORITY SECTOR LENDING-TARGETS AND CLASSIFICATION

An Inter­nal Work­ing Group (IWG) was set up in July 2014 to revis­it the exist­ing pri­or­i­ty sec­tor lend­ing guide­lines. The report of the IWG was placed in the pub­lic domain invit­ing com­ments. The rec­om­men­da­tions of the IWG were exam­ined in the light of the com­ments / sug­ges­tions received from Gov­ern­ment of India, banks, and oth­er stake­hold­ers and revised guide­lines are being issued in super­s­es­sion of guide­lines men­tioned in the Mas­ter Cir­cu­lar RPCD.CO.Plan.BC10/04.09.01/2014–15 dat­ed July 1, 2014 on Pri­or­i­ty Sec­tor Lend­ing – Tar­gets and Classification.

The salient fea­tures of the guide­lines are as under:-

(i) Cat­e­gories of the pri­or­i­ty sec­tor: Medi­um Enter­pris­es, Social Infra­struc­ture and Renew­able Ener­gy will form part of pri­or­i­ty sec­tor, in addi­tion to the exist­ing categories.

(ii) Agri­cul­ture: The dis­tinc­tion between direct and indi­rect agri­cul­ture is dis­pensed with.

(iii) Small and Mar­gin­al Farm­ers: A tar­get of 8 per­cent of ANBC or Cred­it Equiv­a­lent Amount of Off-Bal­ance Sheet Expo­sure, whichev­er is high­er, has been pre­scribed for Small and Mar­gin­al Farm­ers with­in agri­cul­ture, to be achieved in a phased man­ner i.e., 7 per­cent by March 2016 and 8 per­cent by March 2017.

(iv) Micro Enter­pris­es: A tar­get of 7.5 per­cent of ANBC or Cred­it Equiv­a­lent Amount of Off-Bal­ance Sheet Expo­sure, whichev­er is high­er, has been pre­scribed for Micro Enter­pris­es, to be achieved in a phased man­ner i.e. 7 per­cent by March 2016 and 7.5 per­cent by March 2017.

(v) There is no change in the tar­get of 10 per­cent of ANBC or Cred­it Equiv­a­lent Amount of Off-Bal­ance Sheet Expo­sure, whichev­er is high­er, for Weak­er Sections.

(vi) Tar­get for For­eign Banks: For­eign Banks with 20 branch­es and above already have pri­or­i­ty sec­tor tar­gets and sub-tar­gets for Agri­cul­ture and Weak­er Sec­tions, which are to be achieved by March 31, 2018 as per the action plans sub­mit­ted by them and approved by RBI. The sub-tar­gets for Small and Mar­gin­al Farm­ers and Micro Enter­pris­es would be made applic­a­ble post 2018 after a review in 2017. For­eign banks with less than 20 branch­es will move to Total Pri­or­i­ty Sec­tor Tar­get of 40 per­cent of ANBC or Cred­it Equiv­a­lent Amount of Off-Bal­ance Sheet Expo­sure, whichev­er is high­er, on par with oth­er banks by 2019–20, and the sub-tar­gets for these banks, if to be made applic­a­ble post 2020, would be decid­ed in due course.

(vii) Bank loans to food and agro pro­cess­ing units will form part of Agriculture.

(viii) Export cred­it: Export cred­it upto 32 per­cent of ANBC or Cred­it Equiv­a­lent Amount of Off-Bal­ance Sheet Expo­sure, whichev­er is high­er, will be eli­gi­ble as part of pri­or­i­ty sec­tor for for­eign banks with less than 20 branch­es. For oth­er banks, the incre­men­tal export cred­it over cor­re­spond­ing date of the pre­ced­ing year will be reck­oned upto 2 per­cent of ANBC or Cred­it Equiv­a­lent Amount of Off-Bal­ance Sheet Expo­sure, whichev­er is higher.

(ix) The loan lim­its for hous­ing loans and MFI loans qual­i­fy­ing under pri­or­i­ty sec­tor have been revised.

(x) The pri­or­i­ty sec­tor non-achieve­ment will be assessed on quar­ter­ly aver­age basis at the end of the respec­tive year from 2016–17 onwards, instead of annu­al basis as at present.

The revised guide­lines are oper­a­tional with effect from the date of this cir­cu­lar. The pri­or­i­ty sec­tor loans sanc­tioned under the guide­lines issued pri­or to this date will con­tin­ue to be clas­si­fied under pri­or­i­ty sec­tor till repayment/maturity/renewal.

Yours faith­ful­ly,

(A. Udga­ta)
Prin­ci­pal Chief Gen­er­al Manager

I. Cat­e­gories under pri­or­i­ty sector

1. Agri­cul­ture
2. Micro, Small and Medi­um Enterprises
3. Export Cred­it
4. Edu­ca­tion
5. Hous­ing
6. Social Infra­struc­ture
7. Renew­able Energy
8. Oth­ers

The details of 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 all sched­uled com­mer­cial banks oper­at­ing in India are fur­nished below:

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

The addi­tion­al pri­or­i­ty sec­tor lend­ing tar­get of 2 per­cent 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 these banks, if to be made applic­a­ble post 2020, would be decid­ed in due course.

(iii) The com­pu­ta­tion of pri­or­i­ty sec­tor tar­get­s/­sub-tar­gets achieve­ment will be based on the ANBC or Cred­it Equiv­a­lent Amount of Off-Bal­ance Sheet Expo­sures, whichev­er is high­er, as on the cor­re­spond­ing date of the pre­ced­ing year. For the pur­pose of pri­or­i­ty sec­tor lend­ing, ANBC denotes the out­stand­ing Bank Cred­it in India [As pre­scribed in item No.VI of Form ‘A’ under Sec­tion 42 (2) of the RBI Act, 1934] minus bills redis­count­ed with RBI and oth­er approved Finan­cial Insti­tu­tions plus per­mit­ted non SLR bonds/debentures under Held to Matu­ri­ty (HTM) cat­e­go­ry plus oth­er invest­ments eli­gi­ble to be treat­ed as part of pri­or­i­ty sec­tor lend­ing (e.g. invest­ments in secu­ri­tised assets). The out­stand­ing deposits under RIDF and oth­er funds with NABARD, NHB and SIDBI in lieu of non-achieve­ment of pri­or­i­ty sec­tor lend­ing tar­get­s/­sub-tar­gets will form part of ANBC. Advances extend­ed in India against the incre­men­tal FCNR (B)/NRE deposits, qual­i­fy­ing for exemp­tion from CRR/SLR require­ments, as per the Reserve Bank’s cir­cu­lars DBOD.No.Ret.BC.36/12.01.001/2013–14 dat­ed August 14, 2013 read withDBOD.No.Ret.BC.93/12.01.001/2013–14 dat­ed Jan­u­ary 31, 2014 and DBOD mail­box clar­i­fi­ca­tion issued on Feb­ru­ary 6, 2014 will be exclud­ed from the ANBC for com­pu­ta­tion of pri­or­i­ty sec­tor lend­ing tar­gets, till their repay­ment. The eli­gi­ble amount for exemp­tion on account of issuance of long-term bonds for infra­struc­ture and afford­able hous­ing as per Reserve Bank’s cir­cu­lar DBOD.BP.BC.No.25/08.12.014/2014–15 dat­ed July 15, 2014 will also be exclud­ed from the ANBC for com­pu­ta­tion of pri­or­i­ty sec­tor lend­ing tar­gets. For the pur­pose of cal­cu­la­tion of Cred­it Equiv­a­lent Amount of Off-Bal­ance Sheet Expo­sures, banks may be guid­ed by the Mas­ter Cir­cu­lar on Expo­sure Norms issued by our Depart­ment of Bank­ing Regulation.

Com­pu­ta­tion of Adjust­ed Net Bank Cred­it (ANBC)

* For the pur­pose of pri­or­i­ty sec­tor com­pu­ta­tion only. Banks should not deduct / net any amount like pro­vi­sions, accrued inter­est, etc. from NBC.

It has been observed that some banks are sub­tract­ing pru­den­tial write off at Corporate/Head Office lev­el while report­ing Bank Cred­it as above. In such cas­es it must be ensured that bank cred­it to pri­or­i­ty sec­tor and all oth­er sub-sec­tors so writ­ten off should also be sub­tract­ed cat­e­go­ry wise from pri­or­i­ty sec­tor and sub-tar­get achievement.

All types of loans, invest­ments or any oth­er items which are treat­ed as eli­gi­ble for clas­si­fi­ca­tion under pri­or­i­ty sec­tor tar­get/­sub-tar­get achieve­ment should also form part of Adjust­ed Net Bank Credit.

III. Descrip­tion of the eli­gi­ble cat­e­gories under pri­or­i­ty sector

1. Agri­cul­ture

The present dis­tinc­tion between direct and indi­rect agri­cul­ture is dis­pensed with. Instead, the lend­ing to agri­cul­ture sec­tor has been re-defined to include (i) Farm Cred­it (which will include short-term crop loans and medi­um/­long-term cred­it to farm­ers) (ii) Agri­cul­ture Infra­struc­ture and (iii) Ancil­lary Activ­i­ties. A list of eli­gi­ble activ­i­ties under the three sub-cat­e­gories is indi­cat­ed below:

For the pur­pose of com­pu­ta­tion of 7 percent/ 8 per­cent tar­get, Small and Mar­gin­al Farm­ers will include the following:-

• Farm­ers with land­hold­ing of up to 1 hectare are con­sid­ered as Mar­gin­al Farm­ers. Farm­ers with a land­hold­ing of more than 1 hectare and upto 2 hectares are con­sid­ered as Small Farmers.
• Land­less agri­cul­tur­al labour­ers, ten­ant farm­ers, oral lessees and share-croppers.
• Loans to Self Help Groups (SHGs) or Joint Lia­bil­i­ty Groups (JLGs), i.e. 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 of indi­vid­ual farm­ers, 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 per cent by num­ber and whose land-hold­ing share is also not less than 75 per cent of the total land-holding.

2. Micro, Small and Medi­um Enter­pris­es (MSMEs)

2.1. The lim­its for invest­ment in plant and machinery/equipment for man­u­fac­tur­ing / ser­vice enter­prise, as noti­fied by Min­istry of Micro, Small and Medi­um Enter­pris­es, vide S.O.1642(E) dat­ed Sep­tem­ber 9, 2006 are as under:-

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:

2.2. Man­u­fac­tur­ing Enterprises

The Micro, Small and Medi­um Enter­pris­es engaged in the man­u­fac­ture or pro­duc­tion of goods to any indus­try spec­i­fied in the first sched­ule to the Indus­tries (Devel­op­ment and Reg­u­la­tion) Act, 1951 and as noti­fied by the Gov­ern­ment from time to time. The Man­u­fac­tur­ing Enter­pris­es are defined in terms of invest­ment in plant and machinery.

2.3. Ser­vice Enterprises

Bank loans up to ₹ 5 crore per unit to Micro and Small Enter­pris­es and ₹ 10 crore to Medi­um Enter­pris­es engaged in pro­vid­ing or ren­der­ing of ser­vices and defined in terms of invest­ment in equip­ment under MSMED Act, 2006.

2.4. 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 per­cent /7.5 per­cent pre­scribed for Micro Enter­pris­es under pri­or­i­ty sector.

2.5. Oth­er Finance to MSMEs

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

(ii) Loans to co-oper­a­tives of pro­duc­ers in the decen­tral­ized sec­tor viz. arti­sans, vil­lage and cot­tage industries.

(iii) Loans sanc­tioned by banks to MFIs for on-lend­ing to MSME sec­tor as per the con­di­tions spec­i­fied in para­graph IX of this circular.

(iv) Cred­it out­stand­ing under Gen­er­al Cred­it Cards (includ­ing Arti­san Cred­it Card, Laghu Udya­mi Card, Swaro­j­gar Cred­it Card, and Weaver’s Card etc. in exis­tence and cater­ing to the non-farm entre­pre­neur­ial cred­it needs of individuals).

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

2.6. Con­sid­er­ing that the MSMED Act, 2006 does not pro­vide for any sub-cat­e­go­riza­tion with­in the def­i­n­i­tion of micro enter­pris­es and that the sub-tar­get for lend­ing to micro enter­pris­es has been fixed, the cur­rent sub-cat­e­go­riza­tion with­in the def­i­n­i­tion of micro enter­pris­es in the exist­ing guide­lines is dis­pensed with.

2.7. To ensure that MSMEs do not remain small and medi­um units mere­ly to remain eli­gi­ble for pri­or­i­ty sec­tor sta­tus, the 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.

Export cred­it includes pre-ship­ment and post ship­ment export cred­it (exclud­ing off-bal­ance sheet items) as defined in Mas­ter Cir­cu­lar on Rupee / For­eign Cur­ren­cy Export Cred­it and Cus­tomer Ser­vice to Exporters issued by our Depart­ment of Bank­ing Regulation.

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) Loans to indi­vid­u­als up to ₹ 28 lakh in met­ro­pol­i­tan cen­tres (with pop­u­la­tion of ten lakh and above) and loans up to ₹ 20 lakh in oth­er cen­tres for purchase/construction of a dwelling unit per fam­i­ly pro­vid­ed the over­all cost of the dwelling unit in the met­ro­pol­i­tan cen­tre and at oth­er cen­tres should not exceed ₹ 35 lakh and ₹ 25 lakh respec­tive­ly. The hous­ing loans to banks’ own employ­ees will be exclud­ed. As hous­ing loans which are backed by long term bonds are exempt­ed from ANBC, banks should either include such hous­ing loans to indi­vid­u­als up to ₹ 28 lakh in met­ro­pol­i­tan cen­tres and ₹ 20 lakh in oth­er cen­tres under pri­or­i­ty sec­tor or take ben­e­fit of exemp­tion from ANBC, but not both.

(ii) Loans for repairs to dam­aged dwelling units of fam­i­lies up to ₹ 5 lakh in met­ro­pol­i­tan cen­tres and up to ₹ 2 lakh in oth­er centres.

(iii) Bank loans to any gov­ern­men­tal agency for con­struc­tion of dwelling units or for slum clear­ance and reha­bil­i­ta­tion of slum dwellers sub­ject to a ceil­ing of ₹ 10 lakh per dwelling unit.

(iv) The loans sanc­tioned by banks for hous­ing projects exclu­sive­ly for the pur­pose of con­struc­tion of hous­es for eco­nom­i­cal­ly weak­er sec­tions and low income groups, the total cost of which does not exceed ₹ 10 lakh per dwelling unit. For the pur­pose of iden­ti­fy­ing the eco­nom­i­cal­ly weak­er sec­tions and low income groups, the fam­i­ly income lim­it of ₹ 2 lakh per annum, irre­spec­tive of the loca­tion, is prescribed.

(v) Bank loans to Hous­ing Finance Com­pa­nies (HFCs), approved by NHB for their refi­nance, for on-lend­ing for the pur­pose of purchase/construction/reconstruction of indi­vid­ual dwelling units or for slum clear­ance and reha­bil­i­ta­tion of slum dwellers, sub­ject to an aggre­gate loan lim­it of ₹ 10 lakh per borrower.

The eli­gi­bil­i­ty under pri­or­i­ty sec­tor loans to HFCs is restrict­ed to five per­cent of the indi­vid­ual bank’s total pri­or­i­ty sec­tor lend­ing, on an ongo­ing basis. The matu­ri­ty of bank 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) Out­stand­ing deposits with NHB on account of pri­or­i­ty sec­tor shortfall.

6. Social infrastructure

Bank loans up to a lim­it of ₹ 5 crore per bor­row­er for build­ing social infra­struc­ture for activ­i­ties name­ly schools, health care facil­i­ties, drink­ing water facil­i­ties and san­i­ta­tion facil­i­ties in Tier II to Tier VI centres.

7. Renew­able Energy

Bank loans up to a lim­it of ₹ 15 crore to bor­row­ers for pur­pos­es like solar based pow­er gen­er­a­tors, bio­mass based pow­er gen­er­a­tors, wind mills, micro-hydel plants and for non-con­ven­tion­al ener­gy based pub­lic util­i­ties viz. street light­ing sys­tems, and remote vil­lage elec­tri­fi­ca­tion. For indi­vid­ual house­holds, the loan lim­it will be ₹ 10 lakh per borrower.

8. Oth­ers

8.1. Loans not exceed­ing ₹ 50,000/- per bor­row­er pro­vid­ed direct­ly by banks to indi­vid­u­als and their SHG/JLG, pro­vid­ed the indi­vid­ual borrower’s house­hold annu­al income in rur­al areas does not exceed ₹ 100,000/- and for non-rur­al areas it does not exceed ₹ 1,60,000/-.

8.2. Loans to dis­tressed per­sons [oth­er than farm­ers already includ­ed under III (1.1) A (v)] not exceed­ing ₹ 100,000/- per bor­row­er to pre­pay their debt to non-insti­tu­tion­al lenders.

8.3. Over­drafts extend­ed by banks upto ₹ 5,000/- under Prad­han Mantri Jan-DhanY­o­jana (PMJDY) accounts pro­vid­ed the bor­row­ers house­hold annu­al income does not exceed
₹ 100,000/- for rur­al areas and ₹ 1,60,000/- for non-rur­al areas.

8.4. Loans sanc­tioned to State Spon­sored Organ­i­sa­tions for Sched­uled Castes/ Sched­uled Tribes for the spe­cif­ic pur­pose of pur­chase and sup­ply of inputs and/or the mar­ket­ing of the out­puts of the ben­e­fi­cia­ries of these organisations.

IV. Weak­er Sections

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

V. Invest­ments by banks in secu­ri­tised assets

(i) Invest­ments by banks in secu­ri­tised assets, rep­re­sent­ing loans to var­i­ous cat­e­gories of pri­or­i­ty sec­tor, except ‘oth­ers’ cat­e­go­ry, are eli­gi­ble for clas­si­fi­ca­tion under respec­tive cat­e­gories of pri­or­i­ty sec­tor depend­ing on the under­ly­ing assets provided:

(a) the secu­ri­tised assets are orig­i­nat­ed by banks and finan­cial insti­tu­tions and are eli­gi­ble to be clas­si­fied as pri­or­i­ty sec­tor advances pri­or to secu­ri­ti­sa­tion and ful­fil the Reserve Bank of India guide­lines on 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 per­cent per annum.

The invest­ments in secu­ri­tised assets orig­i­nat­ed by MFIs, which com­ply with the guide­lines in Para­graph IX of this cir­cu­lar are exempt­ed from this inter­est cap as there are sep­a­rate caps on mar­gin and inter­est rate.

(ii) Invest­ments made 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 pool of assets by banks rep­re­sent­ing loans under var­i­ous cat­e­gories of pri­or­i­ty sec­tor, except the ‘oth­ers’ cat­e­go­ry, will be eli­gi­ble for clas­si­fi­ca­tion under respec­tive cat­e­gories of pri­or­i­ty sec­tor provided:

(a) the assets are orig­i­nat­ed by banks and finan­cial insti­tu­tions which are eli­gi­ble to be clas­si­fied as pri­or­i­ty sec­tor advances pri­or to the pur­chase and ful­fil the Reserve Bank of India guide­lines on out­right purchase/assignment.

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

© 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 per­cent per annum.

The Assignments/Outright pur­chas­es of eli­gi­ble pri­or­i­ty sec­tor loans from MFIs, which com­ply with the guide­lines in Para­graph IX of this cir­cu­lar are exempt­ed from this inter­est rate cap as there are sep­a­rate caps on mar­gin and inter­est rate.

(ii) When the banks under­take out­right pur­chase of loan assets from banks/ finan­cial insti­tu­tions to be clas­si­fied under pri­or­i­ty sec­tor, they must report the nom­i­nal amount actu­al­ly dis­bursed to end pri­or­i­ty sec­tor bor­row­ers and not the pre­mi­um embed­ded amount paid to the sellers.

(iii) Purchase/ assignment/investment 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 under respec­tive cat­e­gories of pri­or­i­ty sec­tor, pro­vid­ed the under­ly­ing assets are eli­gi­ble to be cat­e­go­rized under the respec­tive cat­e­gories of pri­or­i­ty sec­tor and the banks ful­fil the Reserve Bank of India guide­lines on IBPCs.

VIII. Pri­or­i­ty Sec­tor Lend­ing Certificates

The out­stand­ing pri­or­i­ty sec­tor lend­ing cer­tifi­cates (after the guide­lines are issued in this regard by the Reserve Bank of India) bought by the banks will be eli­gi­ble for clas­si­fi­ca­tion under respec­tive cat­e­gories of pri­or­i­ty sec­tor pro­vid­ed the assets are orig­i­nat­ed by banks, and are eli­gi­ble to be clas­si­fied as pri­or­i­ty sec­tor advances and ful­fil the Reserve Bank of India guide­lines on pri­or­i­ty sec­tor lend­ing certificates.

IX. Bank loans to MFIs for on-lending

(a) Bank cred­it to MFIs extend­ed for on-lend­ing to indi­vid­u­als and also to mem­bers of SHGs / JLGs will be eli­gi­ble for cat­e­gori­sa­tion as pri­or­i­ty sec­tor advance under respec­tive cat­e­gories viz., Agri­cul­ture, Micro, Small and Medi­um Enter­pris­es, and ‘Oth­ers’, as indi­rect finance, pro­vid­ed not less than 85 per­cent of total assets of MFI (oth­er than cash, bal­ances with banks and finan­cial insti­tu­tions, gov­ern­ment secu­ri­ties and mon­ey mar­ket instru­ments) are in the nature of “qual­i­fy­ing assets”. In addi­tion, aggre­gate amount of loan, extend­ed for income gen­er­at­ing activ­i­ty, should be not less than 50 per­cent 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 is to be extend­ed to a bor­row­er whose house­hold annu­al income in rur­al areas does not exceed ₹ 1,00,000/- while for non-rur­al areas it should not exceed ₹ 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 of pre­pay­ment with­out penalty.

(v) The loan is with­out collateral.

(vi) Loan is repayable by week­ly, fort­night­ly or month­ly install­ments at the choice of the borrower.

© Fur­ther, the banks have to ensure that MFIs com­ply with the fol­low­ing caps on mar­gin and inter­est rate as also oth­er ‘pric­ing guide­lines’, to be eli­gi­ble to clas­si­fy these loans as pri­or­i­ty sec­tor loans.

(i) Mar­gin cap: The mar­gin cap should not exceed 10 per­cent for MFIs hav­ing loan port­fo­lio exceed­ing ₹ 100 crore and 12 per­cent 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: With effect from April 1, 2014, 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 Reserve Bank of India.

(iii) Only three com­po­nents are to be includ­ed in pric­ing of loans viz., (a) a pro­cess­ing fee not exceed­ing 1 per­cent of the gross loan amount, (b) the inter­est charge and © 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 insur­ance i.e. 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) The banks should obtain from MFI, at the end of each quar­ter, a Char­tered Accountant’s Cer­tifi­cate stat­ing, inter-alia, 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

To ensure con­tin­u­ous flow of cred­it to pri­or­i­ty sec­tor, there will be more fre­quent mon­i­tor­ing of pri­or­i­ty sec­tor lend­ing com­pli­ance of banks on ‘quar­ter­ly’ basis instead of annu­al basis as of now. The data on pri­or­i­ty sec­tor advances have to be fur­nished by banks at quar­ter­ly and annu­al inter­vals as per revised report­ing for­mats, the guide­lines for which will be issued separately.

XI. Non-achieve­ment of Pri­or­i­ty Sec­tor targets

Sched­uled Com­mer­cial Banks hav­ing any short­fall in lend­ing to pri­or­i­ty sec­tor shall be allo­cat­ed amounts for con­tri­bu­tion to the Rur­al Infra­struc­ture Devel­op­ment Fund (RIDF) estab­lished with NABARD and oth­er Funds with NABARD/NHB/SIDBI, as decid­ed by the Reserve Bank from time to time. For the year 2015–16, the short­fall in achiev­ing pri­or­i­ty sec­tor tar­get/­sub-tar­gets 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 Reserve Bank of India from time to time.

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

Non-achieve­ment of pri­or­i­ty sec­tor tar­gets and sub-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 com­mon guide­lines for all cat­e­gories of advances under the pri­or­i­ty sector.

1. Rate of interest

The rates of inter­est on bank loans will be as per direc­tives issued by our Depart­ment of Bank­ing Reg­u­la­tion from time to time.

2. Ser­vice charges

No loan relat­ed and adhoc ser­vice charges/inspection charges should be levied on pri­or­i­ty sec­tor loans up to ₹ 25,000.

3. Receipt, Sanction/Rejection/Disbursement Register

A register/ elec­tron­ic record should be main­tained by the bank, where­in the date of receipt, sanction/rejection/disbursement with rea­sons there­of, etc., should be record­ed. The register/electronic record should be made avail­able to all inspect­ing agencies.

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 from time to time.

XIV. Definitions/Clarifications

1. On-lend­ing: Loans sanc­tioned by banks to eli­gi­ble inter­me­di­aries for onward lend­ing only for cre­ation of pri­or­i­ty sec­tor assets. The aver­age matu­ri­ty of pri­or­i­ty sec­tor assets thus cre­at­ed should be broad­ly co-ter­mi­nus with matu­ri­ty of the bank loan.

2. Con­tin­gent lia­bil­i­ties/off-bal­ance sheet 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 off-bal­ance sheet 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 off-bal­ance sheet 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. Off-bal­ance sheet inter­bank expo­sures are exclud­ed for com­put­ing Cred­it Equiv­a­lent of Off ‑Bal­ance Sheet 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. The banks should put in place prop­er inter­nal con­trols and sys­tems in this regard.